2. Assume the equilibrium quantity in a competitive market is 6 and the equilibrium price is 16.0 Also assume the highest willingness to pay is 40 and the lowest cost is 4. Calculate the consumer surplus, producer surplus, and total surplus for this market. (CS)40 (0) 16 16 - = 24 12

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2. Assume the equilibrium quantity in a competitive market is 6 and the equilibrium price is 16. to
Also assume the highest willingness to pay is 40 and the lowest cost is 4. Calculate the consumer
surplus, producer surplus, and total surplus for this market. (S)-16 =24
(ps) 16.
24 + 12 = 40 - 16+16 -4 = 40-4 =
4 = 12
3. Describe what is meant by a market outcome being "efficient". The total Surplus is 3-
what a market
outcome means by being efficient -
all information is complete and no cost.
4. Consider the market for corn described in the graphical model below:
is
when
P
10
9
7
1
3
4
9
S
P floor
D
Q
3 44
1
1077
a) Calculate the consumer surplus, producer surplus, and total surplus when no price
restrictions are in place.
b) Calculate the consumer surplus, producer surplus, and total surplus with the price floor in
place.
c) Explain if the market more efficient or less efficient with the price floor?
d) What is a deadweight loss? Is there a deadweight loss in the corn market without the
price floor? If yes, calculate it.
e) Is there a deadweight loss in the corn market with the price floor? If yes, calculate it.
Transcribed Image Text:2. Assume the equilibrium quantity in a competitive market is 6 and the equilibrium price is 16. to Also assume the highest willingness to pay is 40 and the lowest cost is 4. Calculate the consumer surplus, producer surplus, and total surplus for this market. (S)-16 =24 (ps) 16. 24 + 12 = 40 - 16+16 -4 = 40-4 = 4 = 12 3. Describe what is meant by a market outcome being "efficient". The total Surplus is 3- what a market outcome means by being efficient - all information is complete and no cost. 4. Consider the market for corn described in the graphical model below: is when P 10 9 7 1 3 4 9 S P floor D Q 3 44 1 1077 a) Calculate the consumer surplus, producer surplus, and total surplus when no price restrictions are in place. b) Calculate the consumer surplus, producer surplus, and total surplus with the price floor in place. c) Explain if the market more efficient or less efficient with the price floor? d) What is a deadweight loss? Is there a deadweight loss in the corn market without the price floor? If yes, calculate it. e) Is there a deadweight loss in the corn market with the price floor? If yes, calculate it.
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