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 Price Floors
Quantitative Analysis of Price Ceilings and 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 equilibrium price and quantity by setting the quantity demanded (QD) equal to the quantity supplied (QS). Solve the equation 45 - 2P = -15 + P to find the equilibrium price (P).
Substitute the equilibrium price back into either the demand or supply equation to find the equilibrium quantity.
Determine 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 quantity supplied at the price floor and the height is the difference between the price floor and the price at which the supply curve intersects the vertical axis.
Compare the calculated producer surplus with the given options to verify the correct answer.
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