In competitive markets,binding price floors and binding price ceilings lead to
A)a reduction in deadweight loss.
B)fairer prices for consumers and producers,and therefore are better for society as a whole.
C)an overall increase in economic surplus,and therefore to market efficiency.
D)a maximization of economic surplus.
E)an overall reduction in economic surplus,and therefore to market inefficiency.

Question

Quizplus · Accepted Answer

Binding price floors and binding price ceilings create market inefficiency by preventing the market from reaching equilibrium. A binding price floor results in surplus production and decreases consumer surplus, whereas a binding price ceiling creates a shortage and decreases producer surplus. Both situations lead to a decrease in economic surplus, resulting in a less efficient market. Therefore, the best answer is E - an overall reduction in economic surplus, and therefore to market inefficiency.

In Competitive Markets,binding Price Floors and Binding Price Ceilings Lead