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Question
Microeconomics
Posted 5 months ago

has been imposed in this market.

What is the value of consumer surplus after the price ceiling is imposed?
Choose 1 answer:
(A) $108\$ 108
(B) $72\$ 72
(c) $36\$ 36
(D) $18\$ 18
(E) $81\$ 81

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Answer from Sia
Posted 5 months ago
Solution
a
Identify the equilibrium point: The equilibrium point is where the demand (D) and supply (S) curves intersect. From the graph, this occurs at (9, 22)
b
Determine the price ceiling: The price ceiling is the maximum price set by the government. From the graph, the price ceiling is at P=16P = 16
c
Calculate the quantity demanded and supplied at the price ceiling: At P=16P = 16, the quantity demanded (Qd) is 12 and the quantity supplied (Qs) is 6
d
Calculate the consumer surplus: Consumer surplus is the area between the demand curve and the price level up to the quantity demanded. The formula for consumer surplus is: Consumer Surplus=12×Base×Height \text{Consumer Surplus} = \frac{1}{2} \times \text{Base} \times \text{Height} Here, the base is the quantity demanded (12) and the height is the difference between the maximum price consumers are willing to pay (40) and the price ceiling (16): Consumer Surplus=12×12×(40−16)=12×12×24=144 \text{Consumer Surplus} = \frac{1}{2} \times 12 \times (40 - 16) = \frac{1}{2} \times 12 \times 24 = 144 However, since the quantity supplied is only 6, we need to adjust the consumer surplus to reflect the actual quantity traded: Adjusted Consumer Surplus=12×6×(40−16)+(12−6)×(22−16)=12×6×24+6×6=72+36=108 \text{Adjusted Consumer Surplus} = \frac{1}{2} \times 6 \times (40 - 16) + (12 - 6) \times (22 - 16) = \frac{1}{2} \times 6 \times 24 + 6 \times 6 = 72 + 36 = 108
Answer
(A) 108108
Key Concept
Consumer Surplus
Explanation
Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. After a price ceiling is imposed, it is calculated based on the area under the demand curve and above the price ceiling, adjusted for the actual quantity traded.

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