Assume a market that has an equilibrium price of $7.If the market price is set at $3,which of the following is true?
A)Some surplus is transferred from consumers to producers,but total surplus falls.
B)All surplus is transferred from consumers to producers,and total surplus stays the same.
C)Some surplus is transferred from producers to consumers,but total surplus falls.
D)Some surplus is transferred from consumers to producers,causing total surplus to increase.

Question

Quizplus · Accepted Answer

When the market price is set at $3, there is excess demand which leads to a shortage of the product. This shortage increases the price, but it is still below the equilibrium price of $7. As a result, producers supply less than the efficient level, and consumers demand more than the efficient level. This leads to a transfer of surplus from producers to consumers, but the total surplus of the market falls. Therefore, option C is the correct answer.

Assume a Market That Has an Equilibrium Price of $7