Homework Answers
a. Consumer surplus is a difference between. what customers were willing to pay and what they actually paid. It is shown by an area below demand curve and above price charged.
In the figure above, area shaded in blue is a consumer surplus: it is a triangle. Area of a triangle is given by a formula:
1/2 base* height
hence, 1/2 *40*1 = 20 $
b. Producer surplus is a difference between. what producers were willing to accept and what they actually accepted. It is shown by an area above supply curve and below price charged.
In the figure above, area shaded in maroon is a producer surplus: it is a triangle. Area of a triangle is given by a formula:
1/2 base* height
hence, 1/2* 40*1= 20 $
c.Total surplus = consumer surplus+ producer surplus= 20 +20 = 40$
d. After tax of $0.5, consumer surplus in graph 2 is again shown by blue triangular area:
1/2 base* height
1/2*30*0.75= 11.25$
hence Consumer surplus is reduced by 20-11.25=8.75 $
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