Suppose that the equilibrium price in the market for tomatoes is $3 per pound.If a law reduced the maximum legal price for tomatoes to $2 per pound,
A)any possible increase in consumer surplus would be larger than the loss of producer surplus.
B)any possible increase in consumer surplus would be smaller than the loss of producer surplus.
C)the resulting increase in producer surplus would be larger than any possible loss of consumer surplus.
D)the resulting increase in producer surplus would be smaller than any possible loss of consumer surplus.

Question

Quizplus · Accepted Answer

When the maximum legal price for tomatoes is reduced to $2 per pound, the new price is below the equilibrium price of $3 per pound. This means that there will be excess supply in the market, which will result in a surplus of tomatoes. As a result, the quantity demanded by consumers will increase, but the quantity supplied by producers will decrease. This means that there will be some consumers who will benefit from lower prices, but there will also be some producers who will suffer losses. Since the price is now lower than the equilibrium price, consumer surplus will increase, but producer surplus will decrease. However, the loss of producer surplus will be greater than the increase in consumer surplus, resulting in a net decrease in total surplus. Thus, any possible increase in consumer surplus would be smaller than the loss of producer surplus.

Suppose That the Equilibrium Price in the Market for Tomatoes