Policies that restrict supply could generate an increase in social wel

Policies that restrict supply could generate an increase in social welfare because the increase in producer surplus could exceed the decrease in consumer surplus.

Indicate whether the statement is true or false

ANSWER

False. One impact of a supply restriction is an exchange from consumers to producers. The net effect on social welfare is negative. Additionally, there is a deadweight loss. This is the additional surplus that could be generated if supply were not restricted. This effect is always negative. As a result, social welfare always declines in response to a supply restriction.