Calculate the consumer surplus producer surplus and total surplus both before a price floor is established and after a price floor is enacted
In this assessment, you will demonstrate your ability to correctly calculate the consumer surplus, producer surplus, and total surplus both before a price floor is established and after a price floor is enacted.
Suppose that the Gondwanaland chairman of production, who sets the governmental price floor
for gosum berries, in an effort to assist the gosum berry producers to have a higher income, sets
the price floor at $70 per barrel. In that particular year, the amount of gosum berries produced at the $70 price floor was 700 barrels per month. To support the price of gosum berries, the
Chairman of Production’s Office had to purchase 400 barrels per month. The accompanying
chart and diagram shows supply and demand curves illustrating the market for Gondwanaland
gosum berries.
| Price | Quantity Supplied | Quantity Demanded |
| $120 | 1,200 | |
| $110 | 1,100 | |
| $100 | 1,000 | 0 |
| $90 | 900 | 100 |
| $80 | 800 | 200 |
| $70 | 700 | 300 |
| $60 | 600 | 400 |
| $50 | 500 | 500 |
| $40 | 400 | 600 |
| $30 | 300 | 700 |
| $20 | 200 | 800 |
| $10 | 100 | 900 |
| $0 | 0 | 1,000 |
The accompanying diagram shows supply and demand curve illustrating the market for
Gondwanaland gosum berries (Attached). Utilizing this information, answer the following questions.
Questions.
d) After the price floor is instituted, the legal minimum price that can be charged by
suppliers is $70 per barrel. The maximum price that a few of the consumers are still
willing to pay is $100 per barrel of gosum berries. With the price floor at $70 per barrel,
consumers buy 300 barrels of gosum berries per month. How much consumer surplus is
created with the price floor? Show your calculations.
e) After the price floor is instituted, the Chairman of Productions Office buys up any
barrels of gosum berries that the producers are not able to sell. With the price floor,
the producers sell 300 barrels per month to consumers, but the producers, at this high
price floor, produce 700 barrels per month. How much producer surplus is created with
the price floor? Show your calculations.
f) The Chairman of Production’s Office buys any barrels of gosum berries that the
producers are not able to sell. With the price floor, the producers sell 300 barrels per
month to consumers; but the producers, at this high price floor, produce 700 barrels per
month. How much money does the chairman of production’s office spend on buying
up gosum berries? Show your calculations.
g) The Emperor of Gondwanaland must collect taxes from the people to pay for the
purchases of surplus gosum berries by the Chairman of Production’s Office. As a result,
total surplus (producer plus consumer) is reduced by the amount the Chairman of
Production’s Office spent on buying surplus gosum berries. Using your answers for
problems d, e, and f above, what is the total surplus when there is a price floor? Show
your calculations.
h) How does this compare to the total surplus without a price floor from question c
above? Is it more, or less, and by how much?
Answer preview for Calculate the consumer surplus producer surplus and total surplus both before a price floor is established and after a price floor is enacted
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