Exhibit 7-7
-Exhibit 7-7 shows the effects of a decrease in the oil supply due to a war in the Middle East. If the government reacts to the shift of the supply curve from S₁ to S₂by imposing a price ceiling at P₃, then the consumer surplus

Question

Exhibit 7-7

-Exhibit 7-7 shows the effects of a decrease in the oil supply due to a war in the Middle East. If the government reacts to the shift of the supply curve from S₁ to S₂by imposing a price ceiling at P₃, then the consumer surplus

Quizplus · Accepted Answer

A price ceiling below the equilibrium price (after a decrease in supply) would increase consumer surplus by the area above the price ceiling and below the demand curve (area C) but decrease it by the area above the price ceiling and below the new supply curve (area H). Thus, consumer surplus increases by area C less area H.

Exhibit 7-7 -Exhibit 7-7 Shows the Effects of a Decrease in the Decrease