Question

The government of Venezuela imposed price colline on a wide variety of consumer goods from 2007 to at least 2015 (the time of writing) The markets for our sugar and cooking ol were subject to strong price controls that required they be sold below the market price. As a result of these price codings in 2015 the government required that producers provide between 30 and 100 percent of the output to the government Use the graph to the right to illustrate the impact of the price celing in the market for sugar indicate the areas representing consumer surplus, producer surplus and deadweight loss Determine any excess supply or shortage What areas represent the consumer Surplus? Select all that apply G F Price ceiling OC ON DE OD DA OM Demand с в D A What areas represent producers Select all that ON Click to select your answers)

Answer 1

The price ceiling is the maximum legal price that should be charged for a product or service. A binding price ceiling is set below the equilibrium prices and when it is set below the equilibrium price there will be a shortage of the product. The price ceiling is set to protect the consumers from the price is being too high. So when there is a price ceiling the consumer surplus would increase, producer surplus decreases and there is a dead weight loss associated with that.

Ans: Consumer surplus is the area below the demand curve and above price line.

Consumer surplus: N+M+J.

Producer surplus: E.

Dead weight loss: K+H.

The shortage is represented by the distance between Q3-Q1.