Reference: Ref 8-11 (Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. If the goods sold are allocated only to the highest value users, the total consumer surplus in the market would be:
A) $180.
B) $30.
C) $120.
D) $150.

Question

Reference: Ref 8-11 (Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. If the goods sold are allocated only to the highest value users, the total consumer surplus in the market would be:
A) $180. 
B) $30. 
C) $120. 
D) $150.

Quizplus · Accepted Answer

If the goods are allocated only to the highest value users, they will be willing to pay up to $6 for the goods (as shown by the demand curve). Therefore, at a price ceiling of $3, these consumers will demand 10 units of the good.

The total consumer surplus under the price ceiling can be calculated as the area of the triangle with base 10 (quantity demanded by high value users) and height $3 (the difference between the price ceiling and the market price without the ceiling).

Total consumer surplus = (1/2)(10)($3) = $15 x 10 high value users = $150.

Therefore, the correct answer is D.