Answer to Question #132249 in Macroeconomics for sita

Question

Suppose the market for good X has an effective price floor. Then market supply suddenly rise.What impact does this have on the dead weight loss (social cost) caused by the price floor in the market, ceteris paribus?
A) The dead weight loss will be smaller
B)There is no basis for predicting how the change in supply will impact the dead weight loss
C)The dead weight loss will be greater
D)There will be no impact on the dead weight loss

Answer 1

If the market supply suddenly rise, then the possible equilibrium price will decrease, and the dead weight loss (social cost) caused by the price floor in the market will increase.

So, the correct answer is C.