# Figure 1:Price/GallonThe Market for Gasoline\$17\$16\$15\$14\$13\$12\$11\$10\$9\$8\$7\$6\$5\$4\$3\$2\$1015678GallonsenO

Question
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In Figure 1, suppose the marginal value for gasoline falls by \$6 for every quantity demanded for all gas stations in the market. Next, assume that the government enacts a price ceiling of \$2. What is the loss in consumer surplus?

A) \$6
B) \$2
C) \$12
D) There is no consumer welfare loss because prices are lower.
E) There is not enough information to calculate.

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Step 1

After the marginal value for gasoline falls by \$6 for every quantity demanded for all gas stations in the market, the new demand curve(D1) is shown below:

Step 2

Consumer surplus is the price consumer is willing to pay minus the price that is actually paid. In this case the consumer surplus can be shown by the area of triangle ABC.

Initial CS = ½ * 3 * (10-4) = \$9

Step 3

After the changes, the government enacts a price ceiling of \$2 (represented by the red line in the graph). Here the consumer surplus is...

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