(Hint: To find the area of the quadrilateral, select the shaded region.) The total consumer surplus is € True or False: Price controls eliminate mis-allocation of resources. O True O False

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter7: Market Efficiency And Welfare
Section: Chapter Questions
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9. Misallocation of Resources Assume the following graph shows the market for electricity in an economy. Worried that high prices will harm the consumers of electricity, lawmakers decide to impose a price ceiling of €1 per unit. On the following graph, use the green quadrilateral (triangle symbols) to shade the area representing the total consumer surplus (CS).
Calculate the average value of use. On the following graph, place the green line (triangle symbol) horizontally to represent the average value. Then
use the purple quadrilateral (diamond symbols) to shade the area representing the total consumer surplus (CS) under such random allocation.
10
High-Value Uses
Supply
Average Value
Total CS (Random)
Low-Value Uses
Price Ceiling
Demand
2
4
6
8
10
QUANTITY (Units)
The total consumer surplus under random allocation is €
Transcribed Image Text:Calculate the average value of use. On the following graph, place the green line (triangle symbol) horizontally to represent the average value. Then use the purple quadrilateral (diamond symbols) to shade the area representing the total consumer surplus (CS) under such random allocation. 10 High-Value Uses Supply Average Value Total CS (Random) Low-Value Uses Price Ceiling Demand 2 4 6 8 10 QUANTITY (Units) The total consumer surplus under random allocation is €
10
High-Value Uses
Supply
Total CS
8
Low-Value Uses
2
Price Ceiling
Demand
2
6
8
10
QUANTITY (Units)
The total consumer surplus is €
(Hint: To find the area of the quadrilateral, select the shaded region.)
True or False: Price controls eliminate mis-allocation of resources.
O True
O False
The following graph shows the same electricity market as before. Assume that, with the price ceiling imposed, every use between the highest-valued
PRICE (Euros)
Transcribed Image Text:10 High-Value Uses Supply Total CS 8 Low-Value Uses 2 Price Ceiling Demand 2 6 8 10 QUANTITY (Units) The total consumer surplus is € (Hint: To find the area of the quadrilateral, select the shaded region.) True or False: Price controls eliminate mis-allocation of resources. O True O False The following graph shows the same electricity market as before. Assume that, with the price ceiling imposed, every use between the highest-valued PRICE (Euros)
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