Question

1. Refer to the graph below to answer the following questions Price A. Quantity a. What is the producer surplus at the equilibrium price? b. What is the consumer surplus at the equilibrium price? c. What is the producer surplus of new manufacturers when the product price changes from P to P? d. Will consumer surplus increase or decrease (circle your answer) when the product's price decreases from Ps to P? What is the size of the change in consumer surplus? e. What is the consumer surplus of previously existing customers when the price decreases from P, to P,? The following graph illustrates the sandwich market Price 2. $15 8 10 Quantity a. Calculate the producer surplus at a price of $4 b. Calculate the change in producer surplus when the price decreases from $5 to $4. c. Calculate the consumer surplus of new customers when the price decreases from $7 to $5 d. Calculate the total surplus in the sandwich market Shade the area that will depict the change in producer surplus when demand increases and supply remains unchanged e.

Answer 1

(a) Producer surplus at equilibrium price = D + E + F (b) Consumer surplus at equilibrium price = A + B + C (c) PS of manufactures when product price changes from P_3 to P_2 when product price is P_3, PS = F when Product Price increases to P_2, PS increases to D + E + F (d) when price is P_1 CS = A when price is reduced to P_2, CS = A + B + C therefore consumer surplus will increase when price decreases. Size of change = B + C (c) The consumer surplus of previously existing customers when price decreases from P_1 to P_2 is area A \r\n (a) PS at P = $4 = (1/2 times 5 times 10) - (1/2 times 4 times 8) = 25 - 16 = 9 (c) CS = 1/2 times 10 times 10 = 50 (d) Total surplus in the sandwich market = 1/2 times 15 times 10 = 75 (e) Demand increases to D_1

If you find this helpful do give it a thumbs up.