Assume a Market Price Is Set Artificially Low

question 23

Multiple Choice

Assume a market price is set artificially low. In other words, the price is set below the equilibrium price. How will this affect the market?

• A) Every producer loses surplus, and it all gets transferred to consumers.
• B) Some producers drop out of the market, and those left lose some surplus.
• C) Every consumer gains surplus, due to the lower price now being charged.
• D) None of these are correct.

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Definitions:

Employee Stock Ownership Plan

A program that gives employees ownership interest in the company through stock ownership, often used as a corporate finance strategy.

Incentive Plan

A structured program designed to motivate and compensate employees beyond their regular paychecks, often based on performance, productivity, or achieving specific goals.

Stock Ownership Plans

Employee benefit plans that give workers ownership interest in the company through the acquisition of stock, often aimed at improving employee motivation and performance.

Stock Price

The cost of purchasing a share of a specific company, which can fluctuate based on market conditions and the company's performance.