Consider a market characterized by the following inverse demand and supply functions: P_X = 10 − 2Q_X and P_X = 2 + 2Q_X. Compute the surplus producers receive when an $8 per unit price floor is imposed on the market.

Question

Quizplus · Accepted Answer

With a price floor of $8, producers sell 3 units (since 8 = 2 + 2Q). Producer surplus is the area above the supply curve and below the price floor, calculated as 0.5 * (8 - 2) * 3 = $9. However, the question asks for the surplus change due to the price floor, which is $5 more than the equilibrium surplus of $4 (0.5 * (6 - 2) * 2).

Consider a Market Characterized by the Following Inverse Demand and Supply