Compare a market operating at a quantity lower than equilibr

Compare a market operating at a quantity lower than equilibrium (le. a price floor) with the same market operating at the equilibrium quantity. Which of the following statements are true? A market operating below equilibrium will transfer some producer surplus to consumers. It is unclear if the consumer surplus is greater or less at the market operating below equilibrium A market operating below equilibrium will transfer some consumer surplus to producers.

Solution

When the government imposes a price ceiling, the price ceiling is generally set at a level below the equilibrium price. Thus, at a lower price, producers will have less incentive to sell their products and eventually earn less profits and finally will lose some of its producers surplus compared to a market operating at equilibrium.