If the Intended Aim of the Price Ceiling Set at $6

question 167

Multiple Choice

If the intended aim of the price ceiling set at $6, as shown in the graph, was a net increase in the well-being of consumers, then normative analysis would conclude that the policy was:

• A)effective because the surplus gained by consumers through lower prices is less than the surplus they lost due to fewer transactions taking place.
• B)ineffective because the surplus gained by consumers through lower prices is less than the surplus they lost due to fewer transactions taking place.
• C)effective because the surplus lost by producers through lower prices is less than the surplus gained by consumers through lower prices.
• D)There is no "right" conclusion to be reached (in a normative sense)because different people will have different opinions concerning what constitutes a better outcome.

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Definitions:

Unit Elasticity

Demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or quantity supplied is equal to the percentage change in price.

Quantity Demanded

The total amount of goods or services that consumers are willing and able to purchase at a given price.

Price Elasticity

The degree to which demand for an item is affected by changes in its cost.

Quantity Demanded

The total amount of a product that consumers are willing and able to purchase at a given price.