**(a) Calculate the total producers surplus at the market equilibrium price and quantity.**

Area of triangle = (h * b/2) or (1/2 height * base)

so, 20 (height) X 20 (base)/ 2 = 20*20 =400/2 = 200

**Answer - 20*20 = 400/2 = 200 (total producers surplus)**

**AP - Answer - One point is earned for calculating the total producer surplus as (1/2 × 20 × 20) = $200.**

**(b) If the government imposes a price floor at $16, is there a shortage, surplus or neither?**

Remember (floors are high and ceilings are low). A price floor set below the equilibrium price will have no effect as the market will clear.

**Answer - at a $16 price floor neither a surplus or a shortage will occur because the $16 is below the equilibrium price,, it is not an effective or binding price floor.**

**AP - Answer -**One point is earned for stating that imposing a price floor at $16 is ineffective and will not create a surplus or a shortage in the market because it is set below the equilibrium price, or because it is not binding

**(c) If instead the government imposes a price ceiling at $12, is there a shortage, a surplus or neither?**

A

**price ceiling**is a government-imposed price control or limit on how high a price is charged for a product.
So, the highest price that can be charged for the widgets is $12. At the low price of $12 suppliers will only provide 12 units of this good,, but at the low price of $12 people will demand 24 units. So there will be a shortage.

**AP - Answer - One point is earned for stating that imposing a price ceiling at $12 will create a shortage because quantity demanded is greater than quantity supplied, or because the price ceiling is binding.**

**(d) If instead the government restricts the market output to 10 units, calculate the deadweight loss.**

Understand that a 10 unit restriction on output is represented by a perfectly inelastic supply curve at the 10 unit quantity. All the people/quantity to the right of the 10 unit limit will not be served/produced,, thus it is allocatively inefficient and therefore the efficiency is represented by deadweight loss.

Area of Triangle = b*h/2

height = 40-10 =

__30__
base = 20-10 =

__10__
30*10 = 300/2 = 150

**AP - Answer -**One point is earned for calculating the deadweight loss as $150 and for showing:

(1/2 × 30 × 10)
or

(1/2 × 10 × 10) + (1/2 × 20 × 10)
or

$50 + $100

**(e) Assume the price decreases from $20 to $12.**

**(i) Calculate the PED**

**(ii) Is demand perfectly elastic, relatively elastic, unit elastic, perfectly inelastic or relatively inelastic?**