Question

(2) 5 Marks Assume a perfectly competitive market where quantities must be integers and supply and demand schedules are depicted in the following table Q 1 2 3 4 7 $8 MWTP $21 $18 $16 $14 $12 $10 $5 $8 $10 $12 $14 $16 $18 МС TFU: If the equilibrium price without government intervention is $13, then a $11 increases consumer surplus by $5. price ceiling at

Answer 1

Equilibrium price without government intervention is 13$,Q will produced uptil MC<P,in this case Q=4 where MC=12

Consumer surplus,is the sum of MWTP-P at each unit(total amount the consumers were willing to pay extra at each price point). Here its 21-13+ 18-13+16-13+14-13= 8+5+3+1=17$

When the Price ceiling is set at 11$, the quantity will be produced till Q=3 where MC=10$

So Consumer surplus at this point=21-11+ 18-11+ 16-11= 10+7+5=22$

True,the price ceiling of 11$ increases the consumer surplus by 5$ (22-17=5$)