Both price supports and a price floor can
A) create a deadweight loss.
B) decrease output below the equilibrium quantity.
C) decrease the price below the equilibrium price.
D) increase consumer surplus.
E) have no effect on producer surplus.

Question

Quizplus · Accepted Answer

Both price supports and a price floor can lead to a situation where the price of a good or service is held artificially above the market equilibrium price. This results in a deadweight loss, which represents a loss of economic efficiency that occurs when the cost of production exceeds the value that is created for the consumers. As such, both price supports and price floors can create a deadweight loss, which reduces the overall welfare of society.

Both Price Supports and a Price Floor Can