
(a)
Calculate the
(a)

Explanation of Solution
The consumer surplus can be calculated using the general formula as given below:
Substitute the respective values in Equation (1).
Thus, the consumer surplus is $45,000.
Consumer surplus: It is the difference between the highest willing
(b)
Calculate
(b)

Explanation of Solution
The producer surplus when the
Substitute the values in Equation (2).
Thus, the producer surplus is $27,000.
Producer surplus: It is the difference between the lowest willing to accept price by the producer and the actual price received by the producer.
(c)
The new consumer surplus when the government imposes
(c)

Explanation of Solution
The new consumer surplus can be calculated using Equation (3) as given below:
Thus, the new consumer surplus is 20,000.
Price floor: A price floor is defined as the minimum price usually fixed by the Government below which the products are not sold in the market.
Consumer surplus: It is the difference between the highest willing price of the consumer and the actual price that the consumer pays.
(d)
Calculate the new producer surplus when the price floor imposed by the government.
(d)

Explanation of Solution
The new producer surplus when the government imposes price floor can be depicted as the shaded area given in Figure 1. It is the area below the floor price and above the supply curve minus dead weight loss.
New producer surplus can be calculated with the help of the new equilibrium price and minimum willing price along with the new equilibrium quantity. In the above figure, the quantity at price floor $20 is 4,000 units. The minimum willingness of corresponding producer to accept price is
Thus, the new producer surplus is $44,000.
Price floor: A price floor is defined as the minimum price usually fixed by the government below which the products are not sold in the market.
Producer surplus: It is the difference between the lowest willing to accept price by the producer and the actual price received by the producer.
(e)
Price floor is supported mostly by the consumers or producers.
(e)

Explanation of Solution
Price floor is the minimum support price imposed by the government for the benefits of producers. Price floor is generally imposed on agricultural products, which ensures a minimum price for their product. Moreover, the price floor guarantees the minimum wage law, for better living.
Price floor: A price floor is defined as the minimum price usually fixed by the government and below this, the products are not sold in the market.
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Chapter 4 Solutions
Economics Principles For A Changing World
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