Answered: a. suppose that the supermarkets…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a. suppose that the supermarkets combine to form one chain. Using a new diagram, show the equilibrium price and quantity. What is the deadweight loss in this case? Indicate the consumer and producer surplus, how have they changed?

b.Assume that the newly formed supermarkets chain can perfectly price discriminate (hint: it means they can charge each consumer the maximum price they he/she is willing to pay – think about our experiment in the lecture deriving the demand curve for your favourite singer’s tickets). How much will be sold and what will be the deadweight loss in this case? Discuss how policymakers approach these sorts of situations, and why.

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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