The total surplus in this market where the government imposes a price ceiling of $55 when the equilibrium price is $45 and the producer's economic cost is $40 is $250.
What is the total market surplus?
The total market surplus measures the well-being achieved by market participants (consumers and producers).
It is the sum of the consumer surplus and producer surplus.
Consumer Surplus = (Willingness to Pay Price – Market Price) x Equilibrium Quantity
Producer Surplus = (Market Selling Price – Economic Cost) x Equilibrium Quantity
The price ceiling describes the highest price that producers can charge consumers per unit.
Data and Calculations:
Equilibrium price = $45
Equilibrium quantity = 10 units
Price ceiling = $55
Producer's economic cost = $40
Consumer surplus = $100 ($55 - $45 x 10)
Producer's surplus = $150 ($55 - $40) x 100)
Total surplus = $250 ($100 + $150)
The total surplus in this market where the government imposes a price ceiling of $55 when the equilibrium price is $45 and the producer's economic cost is $40 is $250.
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