Figure 7-11

-Refer to Figure 7-11.If the government imposes a price ceiling of $70 in this market,then producer surplus will decrease by
A) $50.
B) $125.
C) $150.
D) $200.

Question

Figure 7-11
 
-Refer to Figure 7-11.If the government imposes a price ceiling of $70 in this market,then producer surplus will decrease by
A) $50. 
B) $125. 
C) $150. 
D) $200.

Quizplus · Accepted Answer

The original equilibrium price is $80 and the original producer surplus is the area above the supply curve and below the original price line, which is shown as triangle ABC in the figure. When the price ceiling is imposed at $70, the new price line intersects with the original supply curve at point D, and the quantity demanded exceeds the quantity supplied, creating a shortage. The new producer surplus is the area above the supply curve and below the new price line, which is shown as triangle ABD in the figure. The difference between the original producer surplus (triangle ABC) and the new producer surplus (triangle ABD) represents the decrease in producer surplus, which is $150. Therefore, the correct answer is C.

Figure 7-11 -Refer to Figure 7-11.If the Government Imposes a Price Ceiling