If the government imposes a price ceiling that is lower than the market clearing price, then
A) consumer surplus will increase while producer surplus will decrease.
B) consumer surplus will decrease while producer surplus will increase.
C) both consumer surplus and producer surplus will decrease.
D) both consumer surplus and producer surplus will increase.

Question

Quizplus · Accepted Answer

A price ceiling that is set lower than the market clearing price creates a situation where demand exceeds supply. As a result, some consumers are able to purchase the good or service at a lower price, but some are unable to obtain it at all. This leads to a decrease in consumer surplus. At the same time, the lower price makes it less profitable for producers to supply the good or service, which leads to a decrease in producer surplus. Therefore, both consumer surplus and producer surplus will decrease.

If the Government Imposes a Price Ceiling That Is Lower