Question

2. If we place a price floor of $30 do we have a surplus or shortage? By how much? Label producer surplus, consumer surplus, and dead weight loss. What is the quantity sold? Calculate the area of consumer surplus, producer surplus, and dead weight loss. $60 $40 $20 20 40 60 0

Answer 1

After price floor is set, It will lead to surplus. The demand will fall from 40 units to 20 units.

Quantity demanded will shift from 40 Units to 20 Units

Consumer Surplus will be given by area of triangle CHD = 1/2 x 20 x 10 = 100 sq. units (as shown in the figure in the picture attached)

Producer surplus after price floor = Area of Triangle AMG + Area of rectangle HDMG = 1/2 x 5 x 20 + 15 x 20 = 350 sq. units

Dead Weight Loss = Area of Triangle BDG = 1/2 x 15 x 20 = 150 sq. units

CONSUMER SURPLUS (DCHD) DEAD WEIGHT (ABDG) 15M 7-14 PRODUCER SURPLUS HDAG tofa 20 40 CONSUMER SURP= ACHD 1x 20x10= 100 sqm.comily DEAD WEIGHT LOSS IX 15x20 = ar (DBDG) = 150 sq. units PRODUCER SURPLUS = al(DAMG) & as (rectangle HDMG) - 1x 5x20+ 15x20 = 350sq units