Figure 9.1
-Refer to Figure 9.1. If the government establishes a price ceiling of $20, total consumer and producer surplus will be
A) $30.
B) $400.
C) $600.
D) $900.
E) $1200.

Question

Figure 9.1
-Refer to Figure 9.1. If the government establishes a price ceiling of $20, total consumer and producer surplus will be
A) $30. 
B) $400. 
C) $600. 
D) $900. 
E) $1200.

Quizplus · Accepted Answer

At a price ceiling of $20, the quantity demanded will be exceeded by the quantity supplied, resulting in a shortage of goods. This shortage causes an increase in the price of the goods, which is referred to as excess burden. The consumer surplus decreases from the original area ADBC to area ADE since some consumers are willing to pay more than $20 but are unable to purchase the goods. The producer surplus decreases from the original area CDEF to area BEF since some producers must sell their products at a lower price. The deadweight loss is the area BDE, which represents the total welfare loss caused by the price ceiling. The total consumer and producer surplus at a price ceiling of $20 is equal to the new consumer surplus (ADE) plus the new producer surplus (BEF), which equals $900. Therefore, the correct answer is (D).

Figure 9.1 -Refer to Figure 9.1. If the Government Establishes a Price