Question

A price floor that is set above the normal equilibrium price will lead to: A. An decrease in consumer surplus, a decrease in producer surplus and dead weight loss. B. A decrease in consumer surplus, a increase in producer surplus and dead weight loss. C. An increase in consumer surplus, a decrease in producer surplus and dead weight loss. D. An increase in consumer surplus, a increase in producer surplus and dead weight l

Answer 1

Answer:

B. A decrease in consumer surplus, a increase in producer surplus and dead weight loss

Explanation:

Price floor is the minimum price for which a good or service can be sold. When price floor is above equilibrium price, quantity demanded falls while quantity supplied increases.

Consumer surplus is the difference between the willingness to pay of a consumer and the price the consumer pays for the product.

Consumer surplus would reduce because price has increased.

Producer surplus is the difference between the least price a producer is willing to sell his product and the price of the product.

Producer surplus would increase as a result of the rise in price.

Deadweight loss is reduction in social surplus as a result of the price floor.

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