Figure 9.4.1
-Refer to Figure 9.4.1 above. Suppose the government raises the price of cheese above the market equilibrium level (P₀) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in consumer surplus after this policy is adopted?

Question

Figure 9.4.1 -Refer to Figure 9.4.1 above. Suppose the government raises the price of cheese above the market equilibrium level (P<sub>0</sub>) by imposing a high minimum price and purchasing all of the excess supply from the market, and these quantities are destroyed. Based on the areas in the figure below, what is the change in consumer surplus after this policy is adopted? A) Consumers lose area B B) Consumers lose area A+B C) Consumers lose area A but gain area B D) Consumers gain area A+B

Quizplus · Accepted Answer

When the government raises the price above the market equilibrium level, consumer surplus decreases by the total area of A+B, as consumers have to pay a higher price and they also lose the surplus that they would have received at the market equilibrium price.

Figure 9.4.1 -Refer to Figure 9.4.1 Above. Suppose the Government Raises the Raises