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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

If a price floor benefits producers, why does a price floor reduce social surplus?

To determine

Provide the reason for decreasing in social surplus because of price floor.

Explanation

The social surplus in the society decreases when government sets the price floor above the market equilibrium price level.

If the government sets the minimum price (P) which is more than equilibrium price level, then it will benefit the producers as they would get more than the market clearing price level. Therefore, the producer surplus rises and consumer surplus falls...

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