March 23, 2017

Post a New Question

Posted by on Thursday, February 15, 2007 at 1:21am.

Suppose that the equilibrium price in the market for widgets is $5. If a law reduced the maximum
legal price for widgets to $4,
a. consumer surplus would necessarily increase even if the lower price resulted in a
shortage of widgets.
b. consumer surplus would necessarily decrease because the lower price would create a
shortage of widgets.
c. consumer surplus might increase or decrease.
d. consumer surplus would be unaffected

can you explain which answer is correct, thanks.

Draw initial supply and demand curves (hint: have the demand curve start at the y-axis). Consumer surplus is represented by the area above price but below the demand curve. Now impose a price ceiling. Your graph should show two changes to consumer surplus -- and INCREASE (in area) because price is lower, and a DECREASE (in area) because suppliers are supplying less. So..... the correct answer is.......

  • Econ MC - , Saturday, November 22, 2014 at 4:20pm


Answer This Question

First Name:
School Subject:

Related Questions

More Related Questions

Post a New Question