If the government imposes a price floor that is higher 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

If the government imposes a price floor that is higher than the market clearing price, it creates a surplus of goods. This surplus occurs because suppliers are willing to supply more than consumers are willing to purchase at the higher price. As a result, both consumer surplus and producer surplus decrease. Consumers now have to pay more for the same quantity of goods while producers cannot sell all of their products, ultimately increasing inefficiency and creating deadweight loss in the market.

If the Government Imposes a Price Floor That Is Higher