Homework Answers
a) At market
determined price of $4, the consumer surplus is area A+B+C whose
sum of triangle is (1/2) * 750 * (9 - 4) = 1,875
b) At market determined price of $4, the producer surplus is area D+E+F whose sum of triangle is (1/2) * 750 * (4 - 1) = 1,125
c) At market determined price of $4, net benefit to society is area A+B+C+D+E+F or consumer surplus + producer surplus whose sum is 1,125 + 1,875 = 3,000
d) If government imposes limit of 675 units, there will be deadweight loss of C+E whose sum is (1/2) * (750 - 675) * (5 - 3.5) = 56.25
e) This deadweight loss would create market failure as market is not able to allocate resources as per the socially optimum level where consumer surplus + producer surplus is maximized.
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