Consumer surplus could be the shaded area in which of the following situations?

Question

BlackTom AI · Accepted Answer

To determine where consumer surplus (CS) is shaded, recall that CS is the area between the demand curve and the market price, up to the quantity traded.
Option 1: a price floor set at P1 in the market. A price floor above the equilibrium price typically creates a surplus and reduces CS for consumers, since the price is higher and the traded quantity may shrink; the shaded CS area would not correspond to this scenario.
Option 2: a price floor set at P2 in the market. This is even higher and would further restrict trading or create excess supply; again, CS would not be the shaded area here, as consumers pay a high price and often buy less.
Option 3: a per-unit subsidy equal to P2-P1 granted to producer. A subsidy to producers lowers producers' effective cost but generally increases total welfare; the consumer’s CS would increase only if the subsidy is passed to consumers via lower prices, but the option describes a subsidy to producers, not a price reduction to consumers, so the CS shading would not correspond to this set‑up.
Option 4: a price ceiling set at P1 in the market. This directly lowers the price that consumers pay (to P1) while the quantity traded is limited (to Q1). The consumer surplus is the area under the demand curve and above the price level P1, up to the traded quantity Q1—precisely the shaded region in the typical diagram for a binding price ceiling.
Option 5: a per-unit tax equal to P2-P1 imposed on producers. A tax on producers raises the effective price to consumers or decreases quantity; CS would typically shrink or shift, and the shaded area under the original demand curve above a higher price would not represent the standard consumer surplus in this tax scenario.
In summary, only the price ceiling at P1 creates the classic shaded CS area between the demand curve and the price line up to the traded quantity, whereas the other options either raise prices, reduce traded quantity in different ways, or modify welfare in ways that do not produce the same CS shading.

AP Economics-Hillebrand AP Microeconomics Sem 1 Exam 2025 - Requires Respondus LockDown Browser

Consumer surplus could be the shaded area in which of the following situations?

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