Multiple Choice
The supply and demand curves for a product are as follows. What is deadweight loss if a price ceiling of $2 is set?
QD = 600 - 100P
QS = -150 + 150P
5. Consumer and Producer Surplus; Price Ceilings and Floors
Quantitative Analysis of Price Ceilings and Price Floors: Finding Areas
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
The supply and demand curves for a product are as follows. What is producer surplus if a price floor of $21 is set?
QD = 45 - 2P
QS = -15 + P
A
6.25
B
10.5
C
12.5
D
13.5
E
18
Verified step by step guidance1
Identify the supply and demand equations: Demand (QD) is given by QD = 45 - 2P and Supply (QS) is given by QS = -15 + P.
Determine the equilibrium price and quantity by setting QD equal to QS and solving for P. This will give you the equilibrium price (Pe) and quantity (Qe).
Calculate the quantity supplied at the price floor of $21 by substituting P = 21 into the supply equation QS = -15 + P.
Calculate the producer surplus at the price floor. Producer surplus is the area above the supply curve and below the price floor, up to the quantity supplied at the price floor. Use the formula for the area of a triangle: (1/2) * base * height, where the base is the difference between the quantity supplied at the price floor and the equilibrium quantity, and the height is the difference between the price floor and the equilibrium price.
Substitute the known values into the producer surplus formula to find the producer surplus at the price floor of $21.
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