Question

Which of the following statements is always true?

	a.	​ A price floor will lead to an increase in consumer surplus.
	b.	​ An increase in price will lead to an increase in producer surplus along a supply curve.
	c.	​ An increase in price will lead to an increase in consumer surplus along a demand curve.
	d.	​ A price ceiling will lead to an increase in consumer surplus.

Answer 1

A
False
Price floor often lead to inefficient outcomes. Price floor prevents price to fall from a certain extend. But introduction of price floor may increase or decrease consumer surplus depends on the demand, supply and market price levels.

B
True
An increase in price raises producer surplus. The shift in supply curve is positively related to the potential surplus. As price increases, producer tend to supply more.

C
False
An increase in price will result in the reduction of consumer surplus. Consumer have to play higher price and thus eroded consumer surplus.

D
False
Price ceilling prevents a price from raising over a certain limit. Thus it will favour consumers and producer will suffer as they are not in a position to raise price. But some times producer also gets benefits from price ceiling. Thus price ceiling results inefficient outcome. Price celling will cause transfer of some producer surplus to consumer or consumer surplus to producer.