Question

i know answer is B but could you explain why

Figure: Gain In Producer Surplus Price Quantity Refer to Figure: Gain in Producer Surplus. Identify the area or areas that represent the total change in consumer surplus when the price floor at P1 is lifted and the market reaches equilibrium price (i.e., market clearing price). a. A and B b. B and C price cant be below a certain point 4. D and E d. A, B, and C laborib

Answer 1

Consumer surplus is the area below the demand curve and upto price line.

The price floor was imposed at P1.

When price floor is P1 then area below the demand curve and upto Price, P1, is A.

This area is the consumer surplus.

So, at Price P1, consumer surplus is A.

Now, price floor is lifted and market moves to equilibrium.

The equilibrium Price is P2 because corresponding to this price demand curve is intersecting the supply curve.

When price is P2 then area below the demand curve and upto price, P2, is A, B, and C.

So,

As price floor is lifted, consumer surplus has increased by area B and C.

Thus,

The total change in consumer surplus is B and C.

Hence, the correct answer is the option (b).