If price is lowered by law from the market equilibrium value of $5 to a lower value of $4:
A) both producer surplus and consumer surplus will increase.
B) consumer surplus will decrease and there will be some total surplus lost.
C) producer surplus will decrease and there will be some total surplus lost.
D) there will be lost surplus, as both producer surplus and consumer surplus decrease.

Question

Quizplus · Accepted Answer

When the price is lowered below the equilibrium, producer surplus decreases because producers receive less for their goods. Additionally, total surplus is lost due to the inefficiency created by the price control, as the quantity supplied and demanded are no longer at equilibrium.

If Price Is Lowered by Law from the Market Equilibrium