would leave room for the price to rise to its equilibrium level. In other words, a price floor below

equilibrium will not be binding and will have no effect.

10. Assuming that people obey the price ceiling, the market price will be below equilibrium, which means that

Qd will be more than Qs. Buyers can only buy what is offered for sale, so the number of transactions will

fall to Qs. This is easy to see graphically. By analogous reasoning, with a price floor the market price will be

above the equilibrium price, so Qd will be less than Qs. Since the limit on transactions here is demand, the

number of transactions will fall to Qd. Note that because both price floors and price ceilings reduce the

number of transactions, social surplus is less.
540

11. Because the losses to consumers are greater than the benefits to producers, so the net effect is negative.

Since the lost consumer surplus is greater than the additional producer surplus, social surplus falls.

Chapter 4
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