A perfectly competitive industry is in equilibrium with price Po and quantity Q

Question

A perfectly competitive industry is in equilibrium with price Po and quantity Q Then the government imposes a price ceiling of Pmax. Use the diagram to the right to answer the following questions Price The change in consumer surplus due to the price ceiling is represented by area A, D+E. B. A+B+C OC. D E F+G OD, D-C E. D+E+H FIG ma The change in producer surplus due to the price ceiling is represented by area OA, -D-E-F-G 2 Quantity OC. -D-E-H D. _C_E. E. H-F-G The deadweight loss due to the price ceiling is represented by area OA. F+G OE. A+H-C-E.

Explanation / Answer

1)

Option d is correct

Change in consumer surplus = A + B + D - (A + B + C) = D - C

2)

Option b is correct

Change in producer surplus = H - (D + E + H) = - D - E

3)

Option b is correct

DWL = - (Change in consumer surplus + Change in producer surplus) = C + E

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