The following figure shows the demand and supply curves for bottled water.

-Refer to the figure above.If a price control is imposed at $8,what is the new consumer surplus in the market?
A) $115
B) $125
C) $130
D) $175

Question

The following figure shows the demand and supply curves for bottled water.
 
-Refer to the figure above.If a price control is imposed at $8,what is the new consumer surplus in the market?
A) $115 
B) $125 
C) $130 
D) $175

Quizplus · Accepted Answer

When a price control is imposed at $8, the quantity demanded exceeds the quantity supplied, leading to a shortage. The new quantity traded is at the point where the demand curve intersects the price ceiling of $8. The new quantity traded is 14 units. The new consumer surplus is the area between the demand curve, the price ceiling, and the quantity traded, which is (1/2)(6)(14-10) = $12. The total consumer surplus at the original equilibrium price of $10 was (1/2)(6)(16-10) = $18. Therefore, the reduction in consumer surplus due to the price control is $6, making the new consumer surplus $18-$6 = $12. Thus, the answer is C.

The Following Figure Shows the Demand and Supply Curves for Bottled