Question

In the micro supply and demand model, which of the following is true when a fully effective price ceiling is removed from a competitive market. (Assume no other change in government policy.) I. This change is a PPI II. Producer surplus must fall III. Consumer surplus must rise

Answer 1

Answer:

Consumer surplus must rise

Explanation:

Remember, the Price ceiling is removed in a competitive market when there is a struggle to get many consumers.

If however the market price is not allowed to rise to the equilibrium level, quantity demanded would exceed quantity supplied, creating a shortage.

For example, several firms sells apple fruit at a price ceiling of $5, when the price ceiling is removed in this competitive market we would expect the firms to lower the price they sell their apples inorder to get more customers.