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Explain why the following statement is false: The market for milk is perfectly competitive, and the...

Explain why the following statement is false: The market for milk is perfectly competitive, and the market price of a gallon of milk is initially $4. If the government imposes a price ceiling of $5, this will create deadweight loss.

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Answer #1

Statement is False.

Price ceiling is the maximum price that could be charged. And if price ceiling is set above the market price than it will not affect the market price or market quantity because market price is already below the price ceiling. If price ceiling was below the $4, then it will create the dead weight loss.

So price ceiling above the market price does not change anything for the market because producer will not charge more price when free maket price is in equilibrium.

#Please rate positively...thank you

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