This graph shows a price ceiling, representing the maximum rate that taxi drivers are permitted to charge for a ride from the airport in a city. Assuming that the price ceiling is effective, what regions on the graph represent total surplus and deadweight loss?
1.Total surplus is A+B+D+E and deadweight loss is F
2.Total surplus is A+B+D+E and deadweight loss is C
3.Total surplus is D+E and deadweight loss is C
4.Total surplus is A+B+D and deadweight loss is C
Homework Answers
As the price ceiling causes the equilibrium price to decrease and so the quantity demanded increases whereas the quantity supplied decreases which creates a shortage in the market and creates a deadweight loss
Total surplus = Producer+consumer surplus= Area A+B+D
Deadweight loss = area C
Option(4)
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