A price floor, when set above the equilibrium price, typically results in a surplus of goods. This leads to a decrease in consumer surplus because consumers have to pay more for the goods than they would at equilibrium. Producer surplus can either increase or decrease depending on the extent to which the higher price offsets the reduced quantity sold.

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With a Price Floor

Question 24

Multiple Choice

With a price floor

A) Consumer surplus falls and producer surplus falls
B) Consumer surplus increases and producer surplus falls
C) Consumer surplus falls and producer can increase or decrease
D) Consumer surplus increases and producer surplus increases

Correct Answer: