Figure 7-14
-Refer to Figure 7-14.If the government imposes a price ceiling of $50 in this market,then the new producer surplus will be
A)$200.
B)$100.
C)$125.
D)$250.

Question

Figure 7-14 
-Refer to Figure 7-14.If the government imposes a price ceiling of $50 in this market,then the new producer surplus will be
A)$200. 
B)$100. 
C)$125. 
D)$250.

Quizplus · Accepted Answer

At the original equilibrium point, the producer surplus was the area between the supply curve and the equilibrium price, which was $150 - $50 = $100.

When a price ceiling of $50 is imposed, the new equilibrium point is where the demand curve intersects the price ceiling line. This new equilibrium price is $40, and the new quantity traded is 4 units.

The new producer surplus is the area between the supply curve and the new equilibrium price of $40, which is:

(1/2) x (4 units) x ($40 - $10) = $60

This is a decrease in producer surplus from the original equilibrium, so the best choice is option B, which represents the new producer surplus of $60.

Figure 7-14 -Refer to Figure 7-14.If the Government Imposes a Price Ceiling