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Raising consumer surplus problem

For the question below, utilize the given information. The market for gizmos is competitive, with an increasing sloping supply curve and a downward sloping demand curve. With no govt. intervention, the equilibrium price is $25 and the equilibrium quantity is 10,000 gizmos. Consider the given programs of government intervention:

Program I: The govt. obliges an excise tax of $2 per gizmo
Program II: The govt. gives a subsidy of $2 per gizmo for gizmo producers.
Program III: The govt. obliges a price floor of $30.
Program IV: The govt. obliges a price ceiling of $20.
Program V: The govt. permits no more than 8,000 gizmos to be generated.

Which of such programs would surely lead to a raise in consumer surplus? State briefly.

E

Expert

Verified

Through excise tax (that is, Program I) the price consumers pay will increase, Therefore consumer surplus will surely go down.

Through subsidy (that is, Program II) the price consumers pay will drop, therefore consumer excess will surely increase.

Through price floor (that is, Program III) the price consumers pay will increase, therefore consumer excess will surely drop.

Through price ceiling (that is, Program III) the price consumers pay will drop, however thus will the quantity generated. Consumer surplus might go down. This can take place when the price floor is so low that very small units are generated (and therefore accessible for purchase by consumers).

With the production quota (that is, Program V) the price consumers pay will increase, therefore consumer surplus will surely drop.

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