Figure 9.1.3
-Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, total consumer and producer surplus will be:
A) $1.50.
B) $300.
C) $450.
D) $500.
E) $600.

Question

Figure 9.1.3
-Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, total consumer and producer surplus will be:
A) $1.50. 
B) $300. 
C) $450. 
D) $500. 
E) $600.

Quizplus · Accepted Answer

At a price of $1.00, the quantity demanded would be 300 units and the quantity supplied would be 450 units. The area of consumer surplus would be the triangle above the price and below the demand curve, which is (1/2)(300)(1) = $150. The area of producer surplus would be the triangle below the price and above the supply curve, which is (1/2)(450)(1) = $225. Thus, the total surplus would be $150 + $225 = $375. However, some transactions would not take place due to the price ceiling, resulting in a deadweight loss. This deadweight loss would be the shaded triangle between the quantity of 300 and 450, the supply curve, and the demand curve. The area of this triangle is (1/2)(150)(1) = $75. Thus, the total consumer and producer surplus with the price ceiling would be $375 - $75 = $300.

Figure 9.1.3 -Refer to Figure 9.1.3 Above. If the Government Establishes a Establishes