Question

Suppose the equilibrium price of bread is $2 per loaf. What would be the efficiency implications of a government policy that prevents the price of bread from rising above $1?

A. The outcome would be inefficient since the marginal cost of producing bread is less than the marginal benefit to the consumers.

B. The outcome would be inefficient since the marginal benefit to consumers is less than the marginal cost of producing the bread.

C. The outcome would be efficient since the total benefit from consumption would be equal to the total cost of producing bread.

D. The outcome would be efficient since the total net benefits would be maximized.

E. The outcome will be efficient since the policy lowers the price of an essential item for consumers.

Answer 1

This is the case of a price ceiling in which the market price is greater than the price that the government has set. At this price, the market quantity exchanged has a greater marginal benefit for consumers then and the marginal cost for producers. there is a difference in the marginal benefit and the marginal cost and due to this reason there is an inefficiency in the production and consumption

Select A