Question

1. Suppose that Adam's willingness To Pay (WTP) for a shirt of a particular brand is equal to 525. The market price of the brand is initially = $35 (thus, Adam's "consumer's surplus" SO, since he won't buy the shirt at that price). But then the brand becomes less popular (although Adam's WTP still equals 5 25; note that the Demand Curve will shift to the left when the brand becomes less popular). a.) Use a relevant graph to show a case where the decline in popularity doesn't affect Adam's consumer surplus in the market for this shirts print out of 50 maal b) Use a relevant graph to show a case where the decline in popularity causes Adam's consumer surplus to increase in the market for this shirt). (.5) 430 2. Consider the market for Good A (assume that Good A is sold in a competitive market; thus, you can assume that the Curve - Cost Curve, and that the D Curve - WTP Curve). You are told that the following points are on the Demand and Supply schedules and thus also are points on the Demand and Supply Curves) for Good A: Price Qty. Demanded Oty. Supplied SS1 280 $50 320 420 $ 49 360 S48 400 S47 390 $ 46 480 380 $ 45 520 $ 44 560 360 $ 43 600 350 410 400 110 370 a.) What is the equilibrium price and the equilibrium quantity (give numerical answers)? b.) Solve for the consumer's surplus on unit number 360 (i.e., on that unit alone). If it was sold at a price - your answer from a.). (.5) c.) Solve for the producer's surplus on unit number 360, IF it was sold at a price your answer from a.). (.5) d.) Solve for the total surplus (to society) on unit number 360, IF it was sold at a price - your answer from a.). (2) e.) Draw a graph to demonstrate your answers to b.), c.), and d.). (3) 1.) Solve for the total surplus (to society) on unit number 360, IF it was sold at a price - $ 46. (2) 2.) What is the efficient level of output provide a numerical answer)? (3)

Answer 1

solution. 1 ca) supply price - X . \Demandº Demand? ,... Quantity - " Initially, equilibrium point is e, where price is $35 and Adam's willingness to bay is $25. Thus his consumer surplus is gero because willingness to pay is less than price. when brandos becomes less popular, demand curve shifts to the left to Demand?, Equilibrium is e' where brice = $25 which is equal to Adam's willingness to pay Here also consumer surplus is gero.

supply Price gs __ e (D' Dº - x - quantity Initially, equilibrium price is $35, and Adam's willingness to pay is $25. 'Hence consumer surplus is gero. when popularity of brand declines demand curve shifts to left to D'. New equilibrium price is $20 and willingness to pay is $25. Hence there is increase of consumer surplus from: zero to arount equal to shaded region. 0