Suppose that a maximum price (price ceiling) is legislated. To calculate consumer surplus:
A) integrate the area under the demand curve and above the free-market equilibrium price.
B) integrate the area under the demand curve and above the ceiling price between zero quantity and the free-market equilibrium quantity.
C) integrate the area under the demand curve and above the ceiling price between zero quantity and the quantity resulting from the price ceiling.
D) integrate the area under the demand curve and above the supply curve between zero quantity and the quantity resulting from the price ceiling.

Question

Quizplus · Accepted Answer

Consumer surplus is calculated by integrating the area under the demand curve and above the price level up to the quantity demanded. When a price ceiling is imposed, it creates a new price level below the free-market equilibrium. Therefore, the consumer surplus is the area under the demand curve and above the ceiling price, up to the quantity that results from the price ceiling, which is accurately described in option C.

Suppose That a Maximum Price (Price Ceiling) Is Legislated