Question

-Supply 1 Supply 2 $120 $115 $110 $105 $100 $95 $90 -Supply 3 Demand 1 Demand 2 Demand 3 -Price Floor Price Ceiling 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 5) From the graph above, the market starts at supply 1 and demand 1, a. If there is a change in technology in the production process which makes it much easier to propose, would it shift to supply 2 or supply 3? b. What would the new equilibrium point be? c. What this total surplus of the market?

Answer 1

5)

a. The supply curve will shift to supply 2 curve since there is an increase in the quantity produced due to the improvement in technology.

b. The new equilibrium price would be $52.5 and equilibrium quantity would be 67.5.

c. The total surplus at the original market situation of demand 1 and supply 1 is:-

Consumer surplus + Producer surplus

= 1/2 * 60 * 60 + 1/2 * 60 * (120 - 60) = 1800 + 1800 = 3600