Use the following to answer questions:
Figure: Price Ceilings and Consumer Surplus
-(Figure: Price Ceilings and Consumer Surplus) Refer to the figure. There is a price ceiling of $20. What is the value of consumer surplus if all units of the good are allocated to the highest valued uses?
A) $40
B) $120
C) $200
D) $210

Question

Use the following to answer questions:
Figure: Price Ceilings and Consumer Surplus 
-(Figure: Price Ceilings and Consumer Surplus) Refer to the figure. There is a price ceiling of $20. What is the value of consumer surplus if all units of the good are allocated to the highest valued uses?
A) $40 
B) $120 
C) $200 
D) $210

Quizplus · Accepted Answer

Consumer surplus is the area below the demand curve and above the price. With a price ceiling of $20, the quantity demanded is 10 units, and consumer surplus would be the area of the triangle between the demand curve, the price ceiling, and the vertical axis, which is (1/2)(20-10)(20)=$100. Since there are 2 consumers in the market, consumer surplus for both consumers would be $100 x 2 = $200. Therefore, the best choice is C.

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