An effective price ceiling will MOST likely result in:
A)an increase in the price.
B)a decrease in deadweight loss.
C)a decrease in producer surplus.
D)no change in either producer or consumer surplus.

Question

Quizplus · Accepted Answer

An effective price ceiling is a maximum legal price set by the government that is below the market equilibrium price. This means that suppliers cannot charge a higher price than the ceiling, which leads to a shortage of goods or services. As the demand is high but the supply is low, the consumers will compete to buy the limited goods at the lower price. Therefore, an effective price ceiling will result in a decrease in producer surplus since suppliers cannot charge the market price to earn a profit. However, it will not lead to an increase in price, as the ceiling prevents it. Deadweight loss occurs when there is a loss of economic efficiency due to market inefficiencies such as taxes, subsidies, and price controls. An effective price ceiling may create more deadweight loss if it leads to black markets, rationing, or long queues. Therefore, the best choice is C, a decrease in producer surplus.

An Effective Price Ceiling Will MOST Likely Result In