1. Refer the graph below: 200 20 600 300 If the market is at the equilibrium, what will be the consumer surplus, pr...

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1. Refer the graph below: 200 20 600 300 If the market is at the equilibrium, what will be the consumer surplus, producer sur

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Answer 1

Answer #1

Use graph to calculate the values

a) Market equilibrium has a price of $8 and a quantity of 400 units

CS = 0.5*(16 - 8)*400 = $1600. PS = 0.5*(8 - 0)*400 = $1600. Total surplus = CS + PS = $3200

b) New price is $12 and so quantity exchanged is 200 units.

New CS =0.5*(16 - 12)*200 = $400.

Decline in CS = 400 - 1600 = -$1200

c) Loss to existing consumers = (12 - 8)*200 = $800 and loss to consumers who left the market = 0.5*(12 - 8)*(400 - 200) = $400.

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Answer 2

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