Figure 7-5

-Refer to Figure 7-5.If the government imposes a price floor of $120 in this market,then consumer surplus will decrease by
A) $75.
B) $125.
C) $225.
D) $300.

Question

Figure 7-5
 
-Refer to Figure 7-5.If the government imposes a price floor of $120 in this market,then consumer surplus will decrease by
A) $75. 
B) $125. 
C) $225. 
D) $300.

Quizplus · Accepted Answer

With a price floor of $120, the new market equilibrium will move to point B on the graph. At this point, consumer surplus is the area of triangle ABD, which equals ($150-$120) x 50 / 2 = $1,250.

Before the price floor was imposed, consumer surplus was the area of triangle ABC, which equals ($150-$100) x 100 / 2 = $2,500.

Thus, consumer surplus decreased by $1,250 - $2,500 = $-1,250, which is equivalent to $225 per unit (since there are 50 units in total). Therefore, the correct answer is C.

Figure 7-5 -Refer to Figure 7-5.If the Government Imposes a Price Floor