Question

Which of the following statements is true as it relates to equilibrium?

• a.)

  There is no deadweight loss at equilibrium.

• b.)

  When above equilibrium, price floors transfer surplus from producers to consumers.

• c.)

  For a price ceiling to be an effective, binding constraint, it must be set higher than equilibrium.

• d.)

  Set below equilibrium, rent control is an example of a price floor.

Answer 1

a) At equilibrium level, Quantity demand is equals to Quantity supply. There is no deadweight loss at equilibrium. This statement is true.

b) Price flooring is the minimum price set above the equilibrium price. In this case, the consumer surplus decreases as compared to the initial case of equilibrium so there is no transfer of surplus from producer to consumer. This is not true.

c) For binding Price ceiling it must be set below the equilibrium price. This statement is not true.

d) Rent control to be an example of price floor, it should be set above the equilibrium price. This statement is not true.