When the market price is set below the equilibrium price:
A) the market is not efficient.
B) total surplus is not maximized.
C) producer surplus is decreased.
D) All of these are true.

Question

Quizplus · Accepted Answer

When the market price is set below the equilibrium price, it means there is excess demand or shortage and the market is not efficient. Total surplus is not maximized because the quantity demanded exceeds the quantity supplied which results in missed opportunities for both consumers and producers. Producers suffer a loss of producer surplus because they receive a lower price than they would at equilibrium.

When the Market Price Is Set Below the Equilibrium Price