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Question
Holding all else constant, when the price of a good increases
a. consumer surplus increases.
b. producer surplus decreases.
c. both producer surplus and consumer surplus increase.
d. both consumer surplus and producer surplus decrease.
e. consumer surplus decreases.
Answer
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What is the long-run consequence of a price ceiling law?
a. A surplus will continue to exist and will grow larger over time.
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Suppose Solomon lives in a community with no price controls. What do you expect will happen if his town borders a community where there is a binding price ceiling on most products?
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