When the market price is held above the competitive level, the deadweight loss is composed of:
A) producer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
B) consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
C) producer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged.
D) There is no deadweight loss if the government uses a price floor policy to increase the price.

Question

Quizplus · Accepted Answer

When the market price is held above the competitive level through a price floor policy, both producers and consumers experience losses of surplus due to the lower quantity exchanged. Therefore, the deadweight loss is composed ofproducer and consumer surplus losses associated with units that used to be traded on the market but are no longer exchanged. Option A and B is incorrect because both producers and consumers experience a loss of surplus. Option D is incorrect because there is always a deadweight loss associated with price floor policy.

When the Market Price Is Held Above the Competitive Level