Which of the following statements best characterizes the loss of total economic surplus induced by a price ceiling?
A) Trades that would have occurred in an unregulated market do not occur.
B) The extra benefit from the last unit consumed is less than the extra cost.
C) The enforcement of the price ceiling is extremely costly.
D) Producers are encouraged to produce too much.
E) A "fair" price for any good cannot be established.

Question

Quizplus · Accepted Answer

A price ceiling is a government-imposed limit on how high a price can be charged for a good or service. If the price ceiling is set below the equilibrium price, it creates a shortage of the good or service because buyers want to buy more of it than sellers are willing to sell at that lower price. This shortage leads to lost trades that would have occurred in an unregulated market, which ultimately reduces the total economic surplus. Therefore, statement A best characterizes the loss of total economic surplus induced by a price ceiling.

Which of the Following Statements Best Characterizes the Loss of Total