Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter7: Consumers, Producers, And The Efficiency Of Markets
Section: Chapter Questions
Problem 9PA
Related questions
Question
![### Consumer Surplus Analysis
In this section, we will analyze Figure 7-19 and determine the consumer surplus at the equilibrium price.
#### Graph Description:
- **X-axis (Quantity)**: The horizontal axis of the graph represents the quantity demanded and supplied, ranging from 0 to 25 units.
- **Y-axis (Price)**: The vertical axis represents the price, ranging from $0 to $85.
- **Demand Curve**: The downward sloping line labeled "Demand" represents the relationship between price and quantity demanded.
- **Supply Curve**: The upward sloping line labeled "Supply" depicts the relationship between price and quantity supplied.
#### Equilibrium Analysis:
- **Equilibrium Point**: The point where the demand and supply curves intersect indicates the equilibrium price and quantity.
- In this figure, the equilibrium occurs at a quantity of 10 units and a price of $50.
#### Consumer Surplus:
- **Consumer Surplus**: The area between the demand curve and the equilibrium price level up to the equilibrium quantity.
- To find the consumer surplus, we consider the area of the triangle formed above the equilibrium price level and below the demand curve.
- The height of the triangle is from $50 to $70 (top of demand curve) which equals $20.
- The base of the triangle is the quantity of 10 units.
**Calculation:**
\[ \text{Consumer Surplus} = \frac{1}{2} \times \text{Base} \times \text{Height} \]
\[ \text{Consumer Surplus} = \frac{1}{2} \times 10 \times 20 \]
\[ \text{Consumer Surplus} = 100 \]
Hence, at the equilibrium price of $50, the consumer surplus is $100.
#### Multiple Choice Question:
Refer to Figure 7-19. At the equilibrium price, consumer surplus is:
- [ ] $100
- [ ] $200
- [ ] $50
- [ ] $450
The correct answer is $100.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F703b43e5-ae23-420c-b3a8-d626b9b6023e%2F36c0b0b9-27c9-4f4d-92cb-a0a02c7102b4%2Ftq2zf9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Consumer Surplus Analysis
In this section, we will analyze Figure 7-19 and determine the consumer surplus at the equilibrium price.
#### Graph Description:
- **X-axis (Quantity)**: The horizontal axis of the graph represents the quantity demanded and supplied, ranging from 0 to 25 units.
- **Y-axis (Price)**: The vertical axis represents the price, ranging from $0 to $85.
- **Demand Curve**: The downward sloping line labeled "Demand" represents the relationship between price and quantity demanded.
- **Supply Curve**: The upward sloping line labeled "Supply" depicts the relationship between price and quantity supplied.
#### Equilibrium Analysis:
- **Equilibrium Point**: The point where the demand and supply curves intersect indicates the equilibrium price and quantity.
- In this figure, the equilibrium occurs at a quantity of 10 units and a price of $50.
#### Consumer Surplus:
- **Consumer Surplus**: The area between the demand curve and the equilibrium price level up to the equilibrium quantity.
- To find the consumer surplus, we consider the area of the triangle formed above the equilibrium price level and below the demand curve.
- The height of the triangle is from $50 to $70 (top of demand curve) which equals $20.
- The base of the triangle is the quantity of 10 units.
**Calculation:**
\[ \text{Consumer Surplus} = \frac{1}{2} \times \text{Base} \times \text{Height} \]
\[ \text{Consumer Surplus} = \frac{1}{2} \times 10 \times 20 \]
\[ \text{Consumer Surplus} = 100 \]
Hence, at the equilibrium price of $50, the consumer surplus is $100.
#### Multiple Choice Question:
Refer to Figure 7-19. At the equilibrium price, consumer surplus is:
- [ ] $100
- [ ] $200
- [ ] $50
- [ ] $450
The correct answer is $100.
Transcribed Image Text:**Understanding Market Equilibrium**
In economics, the market equilibrium is the state where the supply of goods matches demand. This results in steady prices and the optimal distribution of resources. The following figure illustrates the concepts of market supply and demand, leading to the determination of the equilibrium price and quantity.
**Figure 7-19: Supply and Demand Graph**
1. **Axes and Labels:**
- The y-axis represents Price, ranging from $0 to $85.
- The x-axis represents Quantity, ranging from 0 to 25 units.
- Two lines are depicted:
- **Supply Curve:** Slopes upward indicating that as prices increase, the quantity supplied also increases.
- **Demand Curve:** Slopes downward showing that as prices decrease, the quantity demanded increases.
2. **Equilibrium Point:**
- Where the supply and demand curves intersect is the market equilibrium.
- At this point:
- Equilibrium Price: $45.
- Equilibrium Quantity: 10 units.
3. **Additional Reference Points:**
- At a price of $65, the quantity supplied is at 15 units and the quantity demanded is at 5 units.
- At a price of $25, the quantity supplied is 5 units and the quantity demanded is 15 units.
**Question for Review:**
**Refer to Figure 7-19. At the equilibrium price, total surplus is**
- $125.
- $450.
- $250.
- $500.
To accurately calculate the total surplus (the sum of consumer surplus and producer surplus), one needs to evaluate the area of the triangles formed by the supply and demand curves above and below the equilibrium point.
---
This explanation helps students understand how equilibrium price and quantity are determined and highlights the importance of consumer and producer surplus in evaluating market efficiency.
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