Suppose that the equilibrium price in the market for widgets is $8.If a law increased the minimum legal price for widgets to $9,what would be the outcome
A)The resulting increase in consumer surplus would be larger than any possible loss of producer surplus.
B)The resulting increase in consumer surplus would be smaller than any possible loss of producer surplus.
C)Any possible increase in producer surplus would be larger than the loss of consumer surplus.
D)Any possible increase in producer surplus would be smaller than the loss of consumer surplus.

Question

Quizplus · Accepted Answer

The equilibrium price of widgets in the market is $8, meaning that at this price, the quantity supplied is equal to the quantity demanded. However, if the minimum legal price for widgets is increased to $9, there will be a surplus of widgets since the quantity supplied will be higher than the quantity demanded at that price. As a result, some producers will not be able to sell their widgets at the higher price, leading to a loss of producer surplus. On the other hand, the increase in the minimum legal price will lead to a decrease in consumer surplus since consumers will have to pay more for the same quantity they were paying $8 previously, which may lead to reduced demand for widgets. Therefore, any possible increase in producer surplus resulting from the higher price would be smaller than the loss of consumer surplus. Hence, D is the best choice.

Suppose That the Equilibrium Price in the Market for Widgets