Suppose the government imposes a price floor of $28 in the market. If the sellers with the lowest cost are the ones who sell the good and the government does not purchase any excess units produced, then the total surplus will be
a. $400
b. $800
c. $1,120
d. $1,184
Homework Answers
The correct answer is 'Option D'.
Consumer surplus is the area above the price line and below the demand curve whereas producer surplus is the area below the price line and above the supply curve. These areas can be calculated by using the formula of area of a triangle which is:
If the government imposed a price floor of $28 then the consumer surplus will be:
The producer surplus will be:
Total surplus can be calculated as:
Therefore, the total surplus is $1,184.
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