Refer to Exhibit 7-6. If the market is in equilibrium and then the government imposes a price ceiling equal to P3, buyers lose consumer surplus equal to area , but gain consumer surplus equal to area .

If the market is in equilibrium and then the government imposes a price ceiling equal to P3, buyers lose consumer surplus equal to area E, but gain consumer surplus equal to area C.

Explanation:

Market equilibrium represents the situation of the market. The demand in the market will be equalized by the supply in the market. The equilibrium price is  

The price for the goods or service is fixed according to the equalization in the supply and demand of goods in the market. This is known as equilibrium price.

The surplus production by consumer and producer is transferred to the government from buyers and sellers due to charging of tax on the goods or product.

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