Reference: Ref 8-11 (Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. What is the loss of consumer surplus due to the random allocation of price controlled goods compared to the allocation only to the highest value users?
A) $90
B) $60
C) $150
D) $30

Question

Reference: Ref 8-11 (Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. What is the loss of consumer surplus due to the random allocation of price controlled goods compared to the allocation only to the highest value users?
A) $90 
B) $60 
C) $150 
D) $30

Quizplus · Accepted Answer

To find the loss of consumer surplus, we need to calculate the area of the triangle bounded by the demand curve, the price ceiling, and the quantity axis (trapezoid $ABCD$ minus triangle $ABF$).

When the price is $3$, the quantity demanded is $10$, and the consumer surplus is $0.5	imes 10	imes (6-3)=15$.

If the goods are allocated only to the highest value users, the consumer surplus would be $0.5	imes 4	imes (6-4)=4$.

Therefore, the loss of consumer surplus due to random allocation is $15-4=\boxed{\$11}$ per unit.

The total loss of consumer surplus is equal to the loss per unit multiplied by the quantity transacted: $11	imes 10=\boxed{\$60}$.

Therefore, the answer is B.