Suppose that the demand curve for wheat is Q = 100 – 10p and the supply curve is Q = 10p. The government imposes a price ceiling of p = 3. a. Describe how the equilibrium changes. b. What effect does this price ceiling have on consumer surplus, producer surplus, and dead-weight loss?

Suppose that the demand curve for wheat is Q = 100 – 10p and the supply curve is Q = 10p. The government imposes a price ceiling of p = 3. a. Describe how the equilibrium changes. b. What effect does this price ceiling have on consumer surplus, producer surplus, and dead-weight loss?

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter4: Prices: Free, Controlled, And Relative

Section: Chapter Questions

Problem 4WNG

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Question

Suppose that the demand curve for wheat is Q = 100 – 10p and the supply curve is Q = 10p. The government imposes a price ceiling of p = 3.

a. Describe how the equilibrium changes.

b. What effect does this price ceiling have on consumer surplus, producer surplus, and dead-weight loss?

Consumer’s gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price and up to the equilibrium quantity. Consumer surplus is represented by area A.

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