This exercise is to help you understand the impact of different policies on consumer surplus (CS), producer surplus (PS), and total surplus (TS). a. Please draw a supply and demand diagram in a competitive market. Label the x-axis and y-axis. Identify the CS, PS and TS. b. [price control] Suppose now government sets a binding price ceiling (maximum price), draw a supply and demand diagram and show the change in CS, PS, TS, and deadweight loss(DWL). Whose surplus does the government try to improve? Does the policy achieve this goal? Why? c. [price control] Suppose now government sets a binding price floor (minimum price), draw a supply and demand diagram and show the change in CS, PS, TS, and deadweight loss (DWL). Whose surplus does the government try to improve? Does the policy achieve this goal? Why?

Question

This exercise is to help you understand the impact of different policies on consumer surplus (CS), producer surplus (PS), and total surplus (TS).

a. Please draw a supply and demand diagram in a competitive market. Label the x-axis and y-axis. Identify the CS, PS and TS.
b. [price control] Suppose now government sets a binding price ceiling (maximum price), draw a supply and demand diagram and show the change in CS, PS, TS, and deadweight loss(DWL). Whose surplus does the government try to improve? Does the policy achieve this goal? Why?
c. [price control] Suppose now government sets a binding price floor (minimum price), draw a supply and demand diagram and show the change in CS, PS, TS, and deadweight loss (DWL). Whose surplus does the government try to improve? Does the policy achieve this goal? Why? 

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