A price support leads to inefficiency because
A) output is more than the efficient, equilibrium quantity.
B) producer surplus is less than consumer surplus.
C) the price charged is less than the equilibrium price.
D) producers must pay a subsidy to the government.
E) the marginal benefit of the last unit produced is larger than the marginal cost.

Question

Quizplus · Accepted Answer

Price support creates a situation where the price charged for a good or service is higher than the equilibrium price. This leads to an increase in production beyond the efficient quantity, resulting in allocative inefficiency. It also creates a surplus of the good that cannot be sold, which creates deadweight loss.

A Price Support Leads to Inefficiency Because