Question

(A) (B) (C) 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 Using supply and demand diagram (A) above, Identify the consumer surplus, producer surplus, and total surplus when the market is in equilibrium. Using supply and demand diagram (B) above, Identify the consumer surplus, producer surplus, total surplus, and deadweight loss when the price is fixed at $6.00. Using supply and demand diagram (C), Identify the consumer surplus, producer surplus, total surplus, and deadweight loss when the price is fixed at $2.00. Discuss with your group how consumer, producer, and total surplus change between graphs (A), (B), and (C)

Answer 1

A) Market equilibrium at p=4 and Q=6 , where supply and demand is equal.

CONSUMER surplus=1/2*6*(10-4)=3*6=18

Produer surplus=1/2*6*(4-19=3*3=9

Total surplus=CS+PS=18+9=27

B)At p=6,The market price is higher than equilibrium price ,so market QUANTITY will QUANTITY demanded at thsi price .

Q=4

CS=1/2*4*(10-6)=2*4=8

S=1/2*(3-1)*4+(6-3)*4=4+12=16

Total surplus=8+16=24

Deadweight loss=loss of surplus=27-24=3

C) At p=2, market price is lower tham equilibrium price ,so Market QUANTITY will be QUANTITY supplied at this price.

Q=2

CS=(8-2)*2+1/2*2*(10-8)=12+2=14

PS=1/2*2*(2-1)=1

Total surplus=14+1=15

Deadweight loss=27-15=12

D)The consumer surplus is Decrease from A To B and then Increases B to C.

The producer surplus Increases from A to B the Decrease B To C.

Total surplus Decreases from A to B and them further Decrease from B to C.