Question: Consider the houses are randomly allocated such that the average value to consumers is $525. What are the consumer surplus and producer surplus when a rent ceiling is set at $300/month?
With a rent ceiling set at $300, the value of consumer and producer surplus will change.
The consumer surplus is given by the sum of area 1 and area 2, thus, consumer surplus = 1/2 * 10 * (800 - 600) + 10 * (600 - 300) = 1000 + 3000 = $4000.
The producer surplus is represented by area 3 = 1 /2 * 10 * (300 - 150) = $750.
Thus, total surplus =consumer surplus + producer surplus = $4750
Question: Consider the houses are randomly allocated such that the average value to consumers is $525....
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