Figure 7-21

-Refer to Figure 7-21.If the government mandated a price increase from P1 to a higher price,then
A) total surplus would decrease.
B) consumer surplus would increase.
C) total surplus would increase, since producer surplus would increase.
D) total surplus would remain unchanged.

Question

Figure 7-21
 
-Refer to Figure 7-21.If the government mandated a price increase from P1 to a higher price,then
A) total surplus would decrease. 
B) consumer surplus would increase. 
C) total surplus would increase, since producer surplus would increase. 
D) total surplus would remain unchanged.

Quizplus · Accepted Answer

If the government mandates a price increase from P1 to a higher price, consumer surplus will decrease because consumers will have to pay a higher price. Producer surplus will increase since producers will receive a higher price for their goods. However, the decrease in consumer surplus will outweigh the increase in producer surplus, leading to a decrease in total surplus. Therefore, choice A is correct.

Figure 7-21 -Refer to Figure 7-21.If the Government Mandated a Price Increase