(Figure: Price Ceilings and Valuation of Uses) Refer to thefigure. Suppose a price ceiling of $15 goes into effect. If thegoods are allocated only to the highest value uses, the totalconsumer surplus in the market would be:

Question

Quizplus · Accepted Answer

The total consumer surplus can be calculated by finding the area of the triangle above the price line and below the demand curve. When allocating goods only to the highest value uses, the quantity sold is 100 at a price of $15. The area of the triangle is (1/2) x (100) x (30-15) = $750. Since there are 3 potential buyers in this scenario with a maximum willingness to pay of $30, the total consumer surplus is $750 x 3 = $2,250. Subtracting the total amount paid by consumers (which is $15 x 100 = $1,500) from the total consumer surplus, the answer is $2,250 - $1,500 = $750.  However, the question is asking for the total consumer surplus in the market, not just the surplus for those who are able to purchase the good. Since those who are unable to purchase the good due to the price ceiling cannot have any consumer surplus, the total consumer surplus in the market is only the $750 calculated above, multiplied by the number of buyers who are able to purchase the good at the price ceiling. In this case, there are 100 buyers, so the total consumer surplus in the market is $750 x 100 = $75,000. However, this answer is not one of the options given. The closest option is C, $2,500, which is the consumer surplus when the market is operating at the equilibrium price of $20. So, while $2,500 is not the correct answer to the question as phrased, it is the closest option and is the best choice to select.

(Figure: Price Ceilings and Valuation of Uses) Refer to Thefigure