Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:

A) $150.
B) $300.
C) $450.
D) $500.
E) $600.

Question

Katell Guillou · Accepted Answer

Final Answer : C, Explanation :  With a price floor of $2.50, the quantity of berries supplied will be 60 (the amount where the supply curve intersects with the price floor line). At this quantity, the demand curve intersects with the price floor at a price of $3.50. Therefore, consumers will only purchase 60 berries at this price.Total consumer surplus is the area above the price and below the demand curve, up to the quantity purchased. This is:0.5 x (3 - 2.5) x 60 = $15Total producer surplus is the area below the price and above the supply curve, up to the quantity sold. This is:0.5 x (2.5 - 1) x 60 = $45Total surplus is the sum of consumer and producer surplus, which is $60.Since both consumer and producer surplus are reduced due to the price floor, total surplus is lower than it would be at the equilibrium price of $3. Therefore, this policy results in a deadweight loss of $390 ($450 - $60).

Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:

A) $150.
B) $300.
C) $450.
D) $500.
E) $600.

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Learning Objectives

Related questions

Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:A) $150.B) $300.C) $450.D) $500.E) $600.

Definitions

Learning Objectives

Learning Objectives

Related questions

Refer to Figure 9.3.2 above. If the government establishes a price floor of $2.50 and farmers grow only the amount of berries that will be sold, total consumer and producer surplus will be:

A) $150.
B) $300.
C) $450.
D) $500.
E) $600.