A new car in the dealer's showroom had a sticker price of 35,900. ...

[fnuegbu]

A new car in the dealer's showroom had a sticker price of 35,900. Sally liked the car but decided she would pay no more than 32,000 for it, otherwise she would do without it. After haggling with the dealer, she purchased the car for 31,500.
 
  Did she gain any consumers surplus? If so, how much? If not, why not?

Question 2

Suppose the government imposes a price ceiling that is lower than the equilibrium price. Discuss the effect, if any, on the price and quantity if the government later removes the price ceiling.
 
  What will be an ideal response?

[Pswine]

Answer to Question 1

Yes. Consumer surplus is the difference between the highest price a consumer is willing to pay (that is, the value of the good) minus the actual price paid. Sally gained a consumer surplus of 500.00.

Answer to Question 2

If the price ceiling is lower than the equilibrium price, the price ceiling has an effect on the market. When the price ceiling is imposed, it increases the quantity demanded and decreases the quantity supplied, thereby creating a shortage of the good. When the government removes the price ceiling, the reverse effects occur. The price rises back to the equilibrium price. With the higher price, the quantity demanded decreases and the quantity supplied increases. The shortage is eliminated because the quantity produced equals the quantity consumed and both are equal to the equilibrium quantity.