Suppose the government imposes a price support that is above the equilibrium price.As a result,
A) total revenue increases.
B) consumer surplus increases.
C) the marginal cost of the last unit produced decreases.
D) the government has effectively imposed a price ceiling.
E) the subsidy the government pays decreases.

Question

Quizplus · Accepted Answer

When the government imposes a price support that is above the equilibrium price, the market price for the product will be above what it would be in a free market. This means that suppliers will be able to sell more of the product at a higher price, leading to an increase in total revenue. Consumer surplus will not increase because consumers will have to pay a higher price than they would in a free market. The marginal cost of the last unit produced will not necessarily decrease, as it depends on the specifics of the market. This is not a price ceiling, as a price ceiling would be a maximum price set by the government. Finally, there is no mention of a subsidy being paid, so option E is not relevant.

Suppose the Government Imposes a Price Support That Is Above