Exhibit 16.4

-Refer to Exhibit 16.4,which shows the market for a good.Suppose the government introduces a variety of policies that set floor prices for the good at $c.Which of the following areas represents the loss of consumer surplus in this case?

Question

Exhibit 16.4
 
-Refer to Exhibit 16.4,which shows the market for a good.Suppose the government introduces a variety of policies that set floor prices for the good at $c.Which of the following areas represents the loss of consumer surplus in this case?

Quizplus · Accepted Answer

When the government sets a floor price for the good at $c, the price increases from P1 to P2, causing a reduction in consumer surplus. Area bcde represents the loss of consumer surplus in this case, as it is the triangular area between the demand curve, the original price line, and the new price line. Areas ihgl and dfe represent producer surplus, while areas aglo and abeg remain unchanged under the new policy.

Exhibit 16.4 -Refer to Exhibit 16.4,which Shows the Market for a Good.Suppose