Question

Figure 4-5 Price (dollars per month $2,500 2.000 Demand 0 200400 800 Quantity (apartments) Figure 4-5 shows the market for apartments in Springfield. Recently, the government imposed a rent ceiling of $1.000 per month. 2) 2) Refer to Figure 4-5. Suppose that instead of a rent ceiling, the government imposed a price floor of 12,000 per month for apartments. What is the quantity of apartments demanded at the new price? B) 200 C) 300 D) 500 A) 3) Refer to Figure 4-5. What is the value of consumer surplus after the imposition of the ceiling? A) $200,000 B) $250,000 C) $300,000 D) $400.000 the market price is equal to the total 4) The area the market supply curve and amount of producer Surplus in a market. A) below; below B) below; above C) above below D) above above

Answer 1

A) As shown in the diagram , the quantity demanded at the price floor of $2000 per month Is 200 units.

B) Price Ceiling is imposed at a price below the Equilibrium level in order to help the consumer obtain the commodity at a lower price. The price in the market i not allowed to go above the ceiling price.

Consumer Surplus is the area above the price line and below the demand curve.

Because of imposition of price ceiling, there will be excess demand in the market. Quantity demanded is 600 and quantity supplied is only 200. Therefore there will be some deadweight loss to the society and some transfer of surplus from producer to consumer as the price is below the Equilibrium Price of $1500. Hence the consumer Surplus will be represented by the shaded area and is given as :

consumer Surpues. consumer surplus; area ABC f area BLDE . (2000-2000)* 200 + 2500 supply 20000 - Dead weight loss. 1500 HILI DA e t 1000 Price ceiling \ demand 2000-1000) x 200 = 500x100 + 1000x 200 = 50.000 + 2100,000 = 250,000 | 0 o Hee: Sep → PRODUCER SURPUIS

C) The area above the supply curve and below the price line will give us the producer surplus.