Question

I calculate the transfer as 1000. But apparently it’s 500.. isn’t it just the rectangle ? Because graphically the rectangle changed? Or is the answer a mistake ??

Thank you

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Answer 1

Consumer Surplus before price ceiling

CS = (1/2)*(100-60)*(100-0) = $ 2000

PS =(1/2)*(60-20)*(100-0) = $ 2,000

After price ceiling

Deadweight Loss = (1/2)*(80-40)*(100-50) = $ 1,000

PS = (1/2)*(40-20)*(50-0) = $ 500

CS =(1/2)*(100-80)*(50-0) + (80-40)*(50-0)

Consumer Surplus = 500 + 2,000

Consumer Surplus = $ 2,500

Addition to consumer surplus from producer surplus

Transfer = $ 500 (=2500-2000)

Kindly refer the attached picture below to understand the concept

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