When the market price is set below the equilibrium price:
A)efficiency does not occur.
B)total surplus is not maximized.
C)producer surplus is decreased.
D)All of these are true.

Question

Quizplus · Accepted Answer

When the market price is set below the equilibrium price, there is excess demand or a shortage in the market. This leads to inefficiency as not all goods that consumers demand are being supplied, leading to deadweight loss. Total surplus is not maximized as some mutually beneficial trades are not occurring, and consumer surplus is decreased due to the shortage leading to higher prices. Additionally, producer surplus is also decreased as producers are unable to sell all their goods at the higher equilibrium price, which they would have done in the absence of price controls. Therefore, all of these statements are true.

When the Market Price Is Set Below the Equilibrium Price