The graph below shows the supply and demand curves 13+ Demand 12 Supply 11 10 6. 7. - 6. 2 3.4 5, 6 7 8 9 10 11 12 13 Quantity of pizza rolls (8, What is the size of consumer surplus? 2 (3) Price of pizza rolls
The graph below shows the supply and demand curves 13+ Demand 12 Supply 11 10 6. 7. - 6. 2 3.4 5, 6 7 8 9 10 11 12 13 Quantity of pizza rolls (8, What is the size of consumer surplus? 2 (3) Price of pizza rolls
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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using the graph answer the following questions
8-9 listed on image
10. what is the size of social (total) surplus
Transcribed Image Text:**Price Floors and Market Surplus**
1. **Understanding Price Floors**
When a price floor is implemented, it sets a minimum price that must be paid for a good or service. For example, consider a scenario in which a price floor has been established for a certain commodity.
2. **Impacts on Market Supply and Demand**
**Question 6:** As a result of this price floor, is there a shortage or surplus, or is the price floor non-binding?
- If the price floor is set above the equilibrium price, it may lead to a surplus of goods or services. If it is set below or at the equilibrium price, it will be non-binding and have no effect on the market.
*Answer:* The price floor in this scenario is non-binding.
3. **Quantifying Shortage or Surplus**
**Question 7:** What is the amount of the shortage or surplus?
- To determine whether a shortage or surplus exists, and its magnitude, we need to compare the quantity supplied and the quantity demanded at the price floor.
*Answer:* Since the price floor is non-binding, there is no shortage or surplus.
**Supply and Demand Analysis for Pizza Rolls**
4. **Graph Analysis**
The provided graph illustrates supply and demand curves for pizza rolls. The x-axis represents the quantity of pizza rolls, while the y-axis represents the price of pizza rolls. The intersection of the supply and demand curves indicates the market equilibrium.
- The **demand curve** (downward sloping) represents the relationship between the price of pizza rolls and the quantity demanded by consumers.
- The **supply curve** (upward sloping) represents the relationship between the price of pizza rolls and the quantity supplied by producers.
- The point where these two curves intersect denotes the equilibrium price and quantity.
5. **Consumer Surplus Analysis**
**Question 8:** What is the size of the consumer surplus?
- Consumer surplus is calculated as the area between the demand curve and the price level, up to the quantity bought in the market.
*Answer:* The consumer surplus is 2 (3).
6. **Producer Surplus Analysis**
**Question 9:** What is the size of the producer surplus?
- Producer surplus is calculated as the area between the supply curve and the price level, up to the quantity sold in the market.
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