The market demand function for wheat is and the market supply function is ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the consumer surplus?
A) $4 billion
B) $8 billion
C) $10 billion
D) $6 billion

Question

The market demand function for wheat is  and the market supply function is  ,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the consumer surplus?
A) $4 billion 
B) $8 billion 
C) $10 billion 
D) $6 billion

Quizplus · Accepted Answer

To find the consumer surplus, we need to calculate the area under the demand curve but above the equilibrium price (which is $2/bushel without the price floor). With the price floor of $3/bushel, the quantity demanded will decrease to 16 billion bushels per year, while the quantity supplied will increase to 24 billion bushels per year.

The new consumer surplus will be equal to: 
0.5 x (11-3) x 16 billion = $4 billion

Therefore, the correct answer is A) $4 billion.

The Market Demand Function for Wheat Is and the Market