When a Price Ceiling Is Imposed on a Competitive Market

question 87

Multiple Choice

When a price ceiling is imposed on a competitive market at a level above the equilibrium price:

• A)the consumer surplus is reduced.
• B)producers lose some or all of the producer surplus.
• C)the total surplus is not changed by the price ceiling.
• D)both the producers and consumers lose surplus.

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Definitions:

Elastic Demand

A situation where the demand for a good or service greatly changes in response to changes in price.

Direct Price Discrimination

A pricing strategy where a seller charges different prices to different customers for the same product or service, based on their willingness to pay.

Inelastic Demand

A situation in which demand for a good or service is barely affected by changes in price.

Elastic Demand

When consumer demand for a product significantly rises or falls following a small change in its price.