If price controls are imposed, gains from trade, including consumer and producer surplus, are likely to increase.

Question

Quizplus · Accepted Answer

Price controls often lead to distortions in the market, creating shortages or surpluses. In the case of a price ceiling, which limits the price that can be charged for a product or service, businesses may reduce production or quality, leading to shortages. This results in reduced gains from trade for both consumers and producers, leading to a decrease in consumer surplus and producer surplus. Therefore, price controls are not likely to increase gains from trade.

If Price Controls Are Imposed, Gains from Trade, Including Consumer