Question

both please and if you can explain for my understanding that would be great

6. On the first graph, show the initial consumer and producers' surplus. On the second graph, show how the producer and consumers surplus changes when supply increases. On the third graph, show how the producer and consumers surplus changes when demand increases Price A rice Supply Price Sypply D Supply P. E P, P Demand Demand Demand с 0 Quantty 0 Quantity 0 T C Quantity а, On the first graph, show a small tax. On the second graph, show a large tax. On each graph, show how the 8. surpluses change when there is a tax. This is much easier when a generic tax wedge is placed on the market. Price Price A Supply Supply A D D PL E В Demand Demand C 0 Quantity 0 Quantity Q1

Answer 1

6. In the first graph, the consumer surplus is given by the area under the triangle AEP1, since consumer surplus is the excess of the amount which the consumers are willing to pay over the equilibrium price. The producer surplus is given by the area under triangle CEP1.

In the second graph, as supply increases, equilibrium changes. Let the new equilibrium be E', equilibrium price be P2 and the intercept on the quantity axis be F. The consumer surplus is P2AE'. The producer surplus is P2E'F.

In the third graph, as demand increases, the new equilibrium is E'. Price increases to P2 and let the quantity demanded at Price 0 be G. The consumer surplus is therefirtthe area under the triangle GP2E' and producer surplus is the area under the triangle P2E'C.