Use the following to answer questions 22-23:
Figure 3.8
-(Figure 3.8) At a price ceiling of $2, what is the amount of surplus transferred from producers to consumers?
A) $4,000
B) $2,000
C) $1,000
D) $500

Question

Use the following to answer questions 22-23:
Figure 3.8 
-(Figure 3.8) At a price ceiling of $2, what is the amount of surplus transferred from producers to consumers?
A) $4,000 
B) $2,000 
C) $1,000 
D) $500

Quizplus · Accepted Answer

At a price ceiling of $2, the quantity demanded is 4,000 and the quantity supplied is 2,000. The equilibrium price without the price ceiling would be $4. At a price of $2, there is excess demand (quantity demanded exceeds quantity supplied), which creates a shortage. The difference between the consumer surplus at the price ceiling and the consumer surplus at the equilibrium price is equal to the surplus transferred from producers to consumers. In this case, the consumer surplus at the price ceiling is $6,000 [(4,000/2)*$2] and the consumer surplus at the equilibrium price is $2,000 [(4,000/2)*$4]. Therefore, the surplus transferred from producers to consumers is $4,000 ($6,000 - $2,000).

Use the Following to Answer Questions 22-23