Question

Which of the following options accurately describes the consumer surplus when a price floor (p2) is implemented in this market?

A) Consumer surplus increases.
B) Consumer surplus decreases.
C) Consumer surplus remains unchanged.
D) Consumer surplus becomes zero.

Answer 1

A price floor typically results in a decrease in consumer surplus because consumers have to pay a higher price for a lower quantity of goods.

Step-by-step explanation:

When a price floor is implemented in a market, it sets a minimum price that cannot be lowered.

In this situation, the price floor would be represented by p2.

Implementing a price floor typically results in a decrease in consumer surplus.

This is because consumers have to pay a higher price for a lower quantity of goods, reducing the amount of surplus they receive.