Question

the table shows the supply and demand schedules for second hand copies of the Thord edition of a popular economics

2. The table below shows the supply and demand schedules for second-hand copies of the third edition of a popular economics textbook. 85 90 95 100 105 110 Price(€) 55 60 65 70 75 80 Qdemand 15108 322 Quupply 01203 8 9 6 5 a. Calculate consumer and producer surplus at the equilibrium in this market b. When the 4th edition of the book becomes available, the willingness to pay for a copy of the 3rd falls by €20 for all consumers. Derive the new demand schedule and calculate the consumer and producer surplus.

Answer 1

Following demand and supply schedules are given:

Price New price 35 40 45 50 60 55 50 60 35 65 253 70173 75 14 6 80 12 19 85 10 10 90 8 95 100 105 110 65 85 90

a) The diagram representing the original curves is shown below:

Price 110 10 Quantity

The equilibrium price in the market is $85 at which quantity demanded and quantity supplied are equal at 10 in the market.

Consumer Surplus = x (110 – 85) x 10 = $ 125 Producer Surplus = = x (85–55) x 10 = $150

b) If the willingness to pay falls by $20 for all consumers, the diagram representing the new curves is shown below:

Price 10 Quantity

The new equilibrium price in the market is $65 at which quantity demanded and quantity supplied are equal at 10 in the market.

Consumer Surplus = -x – 65) x 10 = $ 125 Producer Surplus = = x (65–35) x 10 = $150