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.a. Show the consumer and producer surplus before the introduction of the price ceiling.

After the introduction of the price ceiling, the price falls to PC and the quantity bought and sold falls to QC.b. Show the consumer surplus after the introduction of the price ceiling (assuming that the consumers with the highest willingness to pay get to buy the available coffee beans; that is, assuming that there is no inefficient allocation to consumers).c. Show the producer surplus after the introduction of the price ceiling (assuming that the producers with the lowest cost get to sell their coffee beans; that is, assuming that there is no inefficient allocation of sales among producers).d. Using the diagram, show how much of what was producer surplus before the introduction of the price ceiling has been transferred to consumers as a result of the price ceiling.e. Using the diagram, show how much of what was total surplus before the introduction of the price ceiling has been lost. That is, how great is the deadweight loss?

Question

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​.a. Show the consumer and producer surplus before the introduction of the price ceiling.

After the introduction of the price ceiling, the price falls to PC​ and the quantity bought and sold falls to QC​.b. Show the consumer surplus after the introduction of the price ceiling (assuming that the consumers with the highest willingness to pay get to buy the available coffee beans; that is, assuming that there is no inefficient allocation to consumers).c. Show the producer surplus after the introduction of the price ceiling (assuming that the producers with the lowest cost get to sell their coffee beans; that is, assuming that there is no inefficient allocation of sales among producers).d. Using the diagram, show how much of what was producer surplus before the introduction of the price ceiling has been transferred to consumers as a result of the price ceiling.e. Using the diagram, show how much of what was total surplus before the introduction of the price ceiling has been lost. That is, how great is the deadweight loss?

Filo · Accepted Answer

Key Concepts: Price Ceiling, Equilibrium, Consumer Surplus, Producer Surplus, Deadweight Loss

Explanation:
The given question is about analyzing the effects of a price ceiling on the market for coffee beans. The question requires us to draw a diagram and calculate consumer surplus, producer surplus, and deadweight loss.

Step by Step Solution:
Step 1. Draw the supply and demand diagram for the market for coffee beans with an equilibrium at point E

Step 2. Calculate the consumer surplus and producer surplus before the introduction of the price ceiling

Step 3. Draw the new equilibrium after the introduction of the price ceiling at point C

Step 4. Calculate the consumer surplus after the introduction of the price ceiling (assuming efficient allocation to consumers)

Step 5. Calculate the producer surplus after the introduction of the price ceiling (assuming efficient allocation of sales among producers)

Step 6. Calculate the amount of the producer surplus that has been transferred to consumers as a result of the price ceiling

Step 7. Calculate the deadweight loss caused by the price ceiling

Question Text	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 $P_{E}$ and an equilibrium quantity bought and sold of $Q_{E}$ .a. Show the consumer and producer surplus before the introduction of the price ceiling. After the introduction of the price ceiling, the price falls to $P_{C}$ and the quantity bought and sold falls to $Q_{C}$ .b. Show the consumer surplus after the introduction of the price ceiling (assuming that the consumers with the highest willingness to pay get to buy the available coffee beans; that is, assuming that there is no inefficient allocation to consumers).c. Show the producer surplus after the introduction of the price ceiling (assuming that the producers with the lowest cost get to sell their coffee beans; that is, assuming that there is no inefficient allocation of sales among producers).d. Using the diagram, show how much of what was producer surplus before the introduction of the price ceiling has been transferred to consumers as a result of the price ceiling.e. Using the diagram, show how much of what was total surplus before the introduction of the price ceiling has been lost. That is, how great is the deadweight loss?
Topic	All Topics
Subject	Economics
Class	Class 9
Answer Type	Text solution:1

Text solutionVerified

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