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A.In the absence of a price floor, the maximum price that a few of the consumers are willing to pay up to $100 per barrel of gosum berries. The market equilibrium (
e. price is $50 per barrel. How much consumer surplus is created, when there is no price floor? Show your calculations.

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Answer: Consumer Surplus is defined as difference between the price consumers are willing to pay for a good less the price they actually pay for it. When the equilibrium price is $50, the maximum willingness to pay $100 and the quantity is 500. It is given by,

[tex] CS=\frac{1}{2}* (Willingness to pay - Equilibrium Price) * Quantity [/tex]

[tex] = \frac{1}{2} * ($100 - $50) * 500
[/tex]

[tex] =\frac{1}{2} * $50 * 500 [/tex]

[tex] = $12,500 [/tex]

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