The demand and supply curves in the market for gasoline are illustrated in the graph below. Starting at the equilibrium point, if the government then imposes a price ceiling of $10, producer surplus will fall by an amount given by the area:

Question

The demand and supply curves in the market for gasoline are illustrated in the graph below.  Starting at the equilibrium point, if the government then imposes a price ceiling of $10, producer surplus will fall by an amount given by the area:

Quizplus · Accepted Answer

When the government imposes a price ceiling of $10, the price of gasoline will be fixed at $10, which is below the equilibrium price of $14. The quantity demanded will increase from Q1 to Q2, while the quantity supplied will decrease from Q1 to Q3. As a result, there will be excess demand or a shortage of gasoline in the market.

The total revenue of producers will decrease from the rectangle A+B+C+D to the rectangle A+C. Therefore, the producer surplus will fall by an amount given by the area B+E, which represents the decrease in the surplus due to the lower price received by producers. The area C represents the increase in the consumer surplus due to the lower price paid by consumers. Therefore, the best choice is C.

The Demand and Supply Curves in the Market for Gasoline