Refer to the figure below. Suppose the dairy lobby convinces the government to impose price controls in this market. If the government requires cheese to be sold for a price of $8 per pound, then, relative to before the price controls, total consumer surplus in the market would:
A)increase
B)decrease
C)not change
D)increase and then decrease

Question

Refer to the figure below. Suppose the dairy lobby convinces the government to impose price controls in this market. If the government requires cheese to be sold for a price of $8 per pound, then, relative to before the price controls, total consumer surplus in the market would: 
A)increase 
B)decrease 
C)not change 
D)increase and then decrease

Quizplus · Accepted Answer

The imposition of price controls will reduce the price of cheese from the original equilibrium price to the price ceiling of $8 per pound. As a result, there will be excess demand for cheese (quantity demanded > quantity supplied) because suppliers will not want to supply as much at a lower price. This will lead to a shortage of cheese in the market. With fewer units of cheese being transacted, the total consumer surplus in the market will decrease.

Refer to the Figure Below