Question

Suppose the weekly demand and supply curves for used DVDs in Lincoln, Nebraska, are as shown in the diagram: Market for used DVDs F G Quantity (DVDs/week) Use the following values for the graph above 12.00 Calculate the following at the equilibrium price of S10.50 a. The weekdy consumer surplus at the market equilibrium price Inatruction: Enter your response rounded to two decimal places. 11.50 10.50 7.50 6.00 18 per week. b. The weekdy producer surplus at the market equilibrium price Instruction: Enter your response rounded to two decimal places. per week. C. The maximum weeky amount that producers and consumers in Lincoln would be willing to pay to be able to buy and sell used DVDs in any given week (total economic surplus). Instruction: Enter your response rounded to two decimal places per week

Answer 1

The equilibrium price is $10.50

The quantity corresponding to the equilibrium price is denoted by alphabet G.

The value of G is 6 units.

So,

The equilibrium quantity is 6 units.

(a)

Calculate the consumer surplus -

CS = 1/2 * [Price at which quantity demanded is zero (Point A) - Equilibrium price] * Equilibrium quantity

CS = 1/2 * [$12 - $10.50] * 6

CS = $4.50

Thus,

The weekly consumer surplus at the market equilibrium price is $4.50 per week.

(b)

Calculate the producer surplus -

PS = 1/2 * [Equilibrium price - Price at which quantity supplied is zero (Point E)] * Equilibrium quantity

PS = 1/2 * [$10.50 - $6] * 6

PS = 1/2 * $4.50 * 6

PS = $13.50

The weekly producer surplus at the market equilibrium price is $13.50 per week.

(c)

Calculate the total economic surplus -

Total economic surplus = Consumer surplus + Producer surplus

Total economic surplus = $4.50 + $13.50 = $18

The economic surplus is $18 per week.