A P1 P2 D P3 Quantity at P1. The government set a price ceiling at P3, identify the area or areas that represent the new total consumer surplus. (Figure: Gain in Consumer Surplus) Look at the figure Gain in Consumer Surplus. If the price is O A and B O A and B and C O A and B and C and D Ss

O Macmillan Learning Price Controls and Quotas - End of Chapter Problem The Venezuelan government has imposed a price ceiling on the retail price of roasted coffee beans. The accompanying diagram shows the market for coffee beans. In the absence of price controls, the equilibrium is at point E, with an equilibrium price of PE and an equilibrium quantity bought and sold of QE. Show the consumer and producer surplus before the introduction of the price ceiling. Price of Coffee Beans E Quantity of Coffee Beans Supply Demand CS PS

M Rising Fertilizer Prices Prospects for the fertilizer sector are exceptional this year. Grain prices have sky rocketed, stimulating greater plantings of grain and greater demand for fertizer The price of fertilizer has soared from US$350 to more than US$600 per tonne during the past year. Source National Post, June 21, 2011 Suppose that the government tries to halt the fertilizer price rise and sets a price ceiling below the equilibrium price mr How would the price celling influence the quantity of fertilizer sold and the shortage or surplus of fertilizer? How would the price celling influence the maximum price that a farmer is willing to pay for the last tonne of fertilizer available on an illicit market? an The price ceiling. OA. decreases OB. increases OC. does not change OD. sometimes increases and sometimes decreases the maximum price that someone is willing to pay for the last tonne of fertilizer available on an illicit market.

1. Measuring Consumer Surplus Suppose the market demand for donuts was the following: P donuts $5 $1.50- 75 Qdon donuts a. Calculate the Consumer Surplus earned in the market when the price is $1.50 b. What happens to consumer surplus if the price drops?

6. What would happen to the market if the price ceiling was set above the equilibrium?

See image below