Figure: Random Allocation Under Price Ceilings

question 128

Essay

Figure: Random Allocation under Price Ceilings
Refer to the figure. The government enacted a price ceiling of $6 per unit. Using the information provided in the graph, calculate the following:
a. If the goods are allocated randomly between the high-value uses and the low-value uses, what is the total amount of consumer surplus in dollars?
b. What is the lost amount of consumer surplus when goods are allocated randomly, when compared to a situation in which the goods are allocated only to the highest-value uses?

---

Definitions:

Nonrenewable Natural Resource

Things such as oil, natural gas, and metals, that are either in actual fixed supply or that renew so slowly as to be in virtual fixed supply when viewed from a human time perspective.

Timber

Wood that has been processed into beams and planks, a stage in the production of materials for building and furniture making.

Alternative Fuels

Fuels other than fossil fuels, often produced from renewable resources, used to power vehicles and machinery.

Economically Viable

Capable of generating sufficient income to cover expenses and produce a profit.