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Figure: Price Ceilings and Consumer Valuation
-(Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. If the goods sold are allocated to buyers randomly, what is the total consumer surplus in this market?
A) $90
B) $120
C) $30
D) $150

Question

Use the following to answer questions:
Figure: Price Ceilings and Consumer Valuation 
-(Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. If the goods sold are allocated to buyers randomly, what is the total consumer surplus in this market?
A) $90 
B) $120 
C) $30 
D) $150

Quizplus · Accepted Answer

To calculate consumer surplus under a price ceiling, we need to find the area between the demand curve and the price ceiling line, up to the quantity supplied at the price ceiling. In this case, the quantity supplied at the price ceiling of $3 is 30. 
To find the total consumer surplus, we need to add up the individual consumer surpluses of each buyer. Since buyers are allocated randomly, each buyer will have an equal chance of buying at any price between $0 and $3. 
Thus, for each buyer, their consumer surplus is the area between the demand curve and the price they paid, up to the quantity they bought. For example, the first buyer has a consumer surplus of (1/2) x (4-3) x 10 = $5. 
Adding up the individual consumer surpluses of all 18 buyers, we get a total consumer surplus of 18 x $5 = $90.

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