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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Draw a market that is in equilibrium, and identify the area of consumers’ surplus and producers’ surplus. Now place a price ceiling in the market, and identify the rise and fall in consumers’ surplus. Finally, identify the decline in producers’ surplus.

To determine

The consumer surplus and the producer surplus.

Explanation

Figure 1 shows the demand curve and supply curves below:

The horizontal axis of Figure 1 measures the quantity and the vertical axis measures the price. The quantity supplied is given by the supply curve S and the demand is given by the demand curve D. The market equilibrium is attained at the price level P1 when the quantity demanded and supplied is equal to Q1 units. The initial consumer’s surplus enjoyed by the consumers is given by the area of A, B and C. At this equilibrium, the producer’s surplus is given by the area D, E and F. There is no deadweight loss in the equilibrium...

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