Question

Market Equilibrium & Trade Gains!

$12,000 $10,000 $8,000- - $6,000 $4,000 $2,000 0 10 20 30 40 50 60 70 80 Q
    

Use this Market (Supply & Demand) Graph for WingSuits, for questions 1 - 8:

1. What is the "Equilibrium" (market agreement) Quantity Sold to Buyers?

2. What is the Equilibrium Price?

3. What Area shows Total Revenue (Total Expenditures)?

4. What Area shows Total Cost (to the Seller)?

5. What Area shows Total Maximum Value (to the Buyer)?

6. What Area shows Profit (to Seller)?

7. What Area shows Consumer Surplus (to Buyer)?

8. What Area shows Social Surplus (total Trade Gains)?

Market Table for: DryBar styling appts  

Price: Qd: Qs:

$ 15 1,200 500

$ 35 1,000 650

$ 55 900 700

$ 75 750 750

$ 95 550 1,000

$115 400 1,200

Using the Table above:

9. What is the Equilibrium ('agreement') Quantity sold to buyers in the market?

10. What is the Equilibrium Price in the market?

Answer 1

1. Ans: Equilibrium quantity sold to buyers = 40 units

2. Ans : Equilibrium price = $8,000

3. Ans: Total Revenue area = STRL

Explanation ;

TR = Price * Quantity , ( SL * LR )

4. Ans: Total cost area ( to the seller ) = VTRL

5. Ans: Total Maximum Value (to the Buyer) area = SHT

6. Ans : Area shows Profit (to Seller) = STV

7. Ans: Area shows Consumer Surplus (to Buyer) = HTS

8. Ans : Area shows Social Surplus (total Trade Gains) = HTV

Explanation;

Social Surplus = Consumer surplus + Producer surplus

= HTS + STV = HTV

9. Ans : The Equilibrium ('agreement') Quantity sold to buyers in the market = 750 units

10. Ans: The Equilibrium Price in the market = $75

Explanation;

Equilibrium price and quantity is determined where , Q_D = Q_S