FIGURE 5-7
-Refer to Figure 5-7. The market for good X is in equilibrium at P 0 and Q0. Now suppose the government imposes a at P2. One result would be .
A) price floor; an increase in economic surplus represented by area 1
B) price floor; a deadweight loss represented by areas 5 and 6
C) price ceiling; an increase in economic surplus represented by areas 2 and 5
D) price floor; a deadweight loss represented by area 8
E) price ceiling; a deadweight loss represented by areas 5 and 6

Question

FIGURE 5-7
-Refer to Figure 5-7. The market for good X is in equilibrium at P 0 and Q0. Now suppose the government imposes a at P2. One result would be .
A) price floor; an increase in economic surplus represented by area 1 
B) price floor; a deadweight loss represented by areas 5 and 6 
C) price ceiling; an increase in economic surplus represented by areas 2 and 5 
D) price floor; a deadweight loss represented by area 8 
E) price ceiling; a deadweight loss represented by areas 5 and 6

Quizplus · Accepted Answer

The imposition of a price floor means the government sets a minimum price that must be paid for the good. This results in a surplus of supply (Qs) over demand (Qd), represented by areas 5 and 6. These areas represent a deadweight loss, as resources are wasted producing goods that are not being consumed by the market. Therefore, the best answer is B.

FIGURE 5-7 -Refer to Figure 5-7. the Market for Good X Is