Use the following statements to answer this question: I.When the market price is held above the competitive price level,the loss in consumer surplus is fully captured by producers.
II.When the market price is held above the competitive level,there is no deadweight loss because producer gains exactly equal consumer losses.
A)I and II are true.
B)I is true and II is false.
C)II is true and I is false.
D)I and II are false.

Question

Quizplus · Accepted Answer

Statement I is true because when the market price is held above the competitive price level, consumers are willing to pay more than the equilibrium price, but producers only need to produce at the competitive price level. This results in a transfer of consumer surplus to producer surplus. Statement II is false because there is still a deadweight loss when the market price is held above the competitive level, as some consumers who were willing to purchase the good at the lower competitive price may no longer be able to afford it, resulting in a loss of overall welfare.

Use the Following Statements to Answer This Question: I