Question

Suppose the government imposes a price floor of $28 in this market. If the sellers with the lowest cost are the ones who sell the good and the government does not purchase any excess units produced, then total surplus will be

Answer 1

Answer:

$1120

Explanation:

The chart of the question is in the below image.

Consumer surplus is the area above the price line and below the demand curve whereas producer surplus is the area below the price line and above the supply curve. These areas can be calculated by using the formula of area of a triangle which is

If the government imposed a price floor of $28 then the consumer surplus will be:

A = (1/2)×$40×($48 -$28)

A = $400

The producer surplus = ($28 -$20)×$40 + (1/2)×($20-$0)×($40 -$0)

The producer surplus = $8× $40 + $400 = $320+$400 = $720

Total surplus can be calculated as:

Total Surplus = Consumer surplus + Producer Surplus

Total Surplus = $400 + $720 = $1120

Total Surplus is $1120