Figure 9.3.2
-Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:
A) $150.
B) $300.
C) $450.
D) $500.
E) $600.

Question

Figure 9.3.2
-Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:
A) $150. 
B) $300. 
C) $450. 
D) $500. 
E) $600.

Quizplus · Accepted Answer

With a price floor of $2.50, the quantity of berries supplied will be 60 (the amount where the supply curve intersects with the price floor line). At this quantity, the demand curve intersects with the price floor at a price of $3.50. Therefore, consumers will only purchase 60 berries at this price.

Total consumer surplus is the area above the price and below the demand curve, up to the quantity purchased. This is:

0.5 x (3 - 2.5) x 60 = $15

Total producer surplus is the area below the price and above the supply curve, up to the quantity sold. This is:

0.5 x (2.5 - 1) x 60 = $45

Total surplus is the sum of consumer and producer surplus, which is $60.

Since both consumer and producer surplus are reduced due to the price floor, total surplus is lower than it would be at the equilibrium price of $3. Therefore, this policy results in a deadweight loss of $390 ($450 - $60).

Figure 9.3.2 -Refer to Figure 9.3.2 Above. If the Government Establishes a Establishes