Figure 7-4
-Refer to Figure 7-4.If the government imposes a price floor of $120 in this market,then consumer surplus will decrease by

Question

Figure 7-4 
-Refer to Figure 7-4.If the government imposes a price floor of $120 in this market,then consumer surplus will decrease by

Quizplus · Accepted Answer

Consumer surplus is the area between the demand curve and the equilibrium price. A price floor of $120 is above the equilibrium price of $100, so it leads to a surplus of sellers but a shortage of buyers. As a result, the quantity demanded decreases to 50 while the quantity supplied increases to 100. The new consumer surplus is equal to the area of the triangle below the demand curve, above the new price floor of $120, and to the left of the new quantity demanded, which is given by:

(1/2) x (80-50) x (150-120) = $225

Therefore, consumer surplus decreases by $225 - $300 = -$75.

Figure 7-4 -Refer to Figure 7-4.If the Government Imposes a Price Floor