AP Economics
Mr. Davey
Sample FRQ
Producer and Consumer Surplus
1. Assume the market for housing in Berwyn is perfectly competitive and currently at equilibrium.
a. Using a correctly labeled supply and demand graph show each of the following:
i. The equilibrium price and quantity.
ii. The area representing consumer surplus, labeled CS.
iii. The area representing producer surplus, labeled PS.
b. Suppose the government imposes an effective (binding) price ceiling in the housing
market.
i. Redraw your graph accounting for the ceiling.
ii. Identify the area representing consumer surplus with horizontal lines and
producer surplus with vertical lines.
iii. Describe the current condition of the housing market.
c. Suppose that a significant number of immigrants move to the Berwyn area searching for
a place to live. Draw the corresponding graph accounting for the new conditions (price
ceiling still effective).
i. Indicate what will happen to the area of consumer surplus and producer surplus
(increase or decrease).
ii. Shade the area of deadweight loss incurred from the current market conditions.