Which of the following statements regarding a price ceiling in a perfectly competitive market is incorrect?
A)There will be no deadweight loss with the price ceiling.
B)The will be excess demand resulting from the price ceiling.
C)The market will under produce relative to the efficient level.
D)Consumer surplus may either increase or decrease with a price ceiling.

Question

Quizplus · Accepted Answer

A price ceiling will create a shortage of goods in a perfectly competitive market, which will lead to excess demand and a decrease in consumer surplus. The shortage will also cause deadweight loss as goods that consumers are willing to buy at the price ceiling are not produced. Therefore, statement A is incorrect as there will be deadweight loss with a price ceiling in a perfectly competitive market. This statement is incorrect because a price ceiling in a perfectly competitive market will result in a deadweight loss, as it causes inefficiencies in the allocation of resources. The price ceiling will prevent the market from reaching the equilibrium price that balances supply and demand, leading to excess demand and a decrease in the quantity supplied, which results in deadweight loss. The consumer surplus may increase with a lower price, but this will only partially offset the deadweight loss.

Which of the Following Statements Regarding a Price Ceiling in a Perfectly