If a price ceiling is introduced in the market for milk below the market equilibrium price,then the producer surplus made by dairy farmers ________.
A) will increase
B) will decrease
C) will not change
D) might increase or decrease depending on whether the demand for milk increases or decreases
E) might increase or decrease depending on whether the supply of milk decreases or increases

Question

Quizplus · Accepted Answer

A price ceiling below the market equilibrium price would lead to a situation of excess demand, and some consumers would end up not being able to purchase the milk they desire. As a result, dairy farmers would have to supply a lower quantity of milk, and they would have to sell it at the price set by the price ceiling. This would decrease the producer surplus made by dairy farmers because they would receive a lower price for their milk, and they would have to forgo some potential profit.

If a Price Ceiling Is Introduced in the Market for Milk