Reference: Ref 8-10 (Figure: Price Ceilings and Valuation of Uses) Refer to the figure. Suppose a price ceiling of $15 goes into effect. If the goods are allocated only to the highest value uses, the total consumer surplus in the market would be:
A) $3,000.
B) $500.
C) $2,500.
D) $1,000.

Question

Reference: Ref 8-10 (Figure: Price Ceilings and Valuation of Uses) Refer to the figure. Suppose a price ceiling of $15 goes into effect. If the goods are allocated only to the highest value uses, the total consumer surplus in the market would be:
A) $3,000. 
B) $500. 
C) $2,500. 
D) $1,000.

Quizplus · Accepted Answer

Total consumer surplus in the market would be the sum of consumer surplus from all buyers who are willing to pay more than $15 for the good. In this case, the highest value uses can pay up to $20 for the good, which means their consumer surplus would be $5 for each unit of the good they buy ($20-$15). Therefore, the total consumer surplus in the market would be $2,500 ($5*500 units of the good allocated to highest value uses).