MACROECONOMICS FOR TODAY
MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
Question
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Chapter 3.A, Problem 3SQP
To determine

The total surplus with $30 market price and with $15 market price.

Expert Solution & Answer
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Explanation of Solution

Table 1 shows the market price spent and the maximum wiliness to pay by the different potential buyers as follows:

Table 1

Potential buyersMaximum willingness to payMarket price
B$60$30
J4530
S3530
Jam2530
F1030

From this table, it is clear that the maximum willingness to pay of “Jam” and “F” is less than the market price or actual pay, and they would not consume at the market price. Therefore, they can be ignored from the total consumer surplus calculation.

The calculation of consumer surplus with market price $30 is given as follows:

Consumer surplus=((Willing priceBMarket price)+(Willing priceJMarket price)+(Willing priceSMarket price))=((6030)+(4530)+(3530))=(30+15+5)=50

The total consumer surplus is 50.

Table 2 shows the market price spent and the minimum willingness to sell by the different potential buyers as follows:

Table 2

Potential buyersMinimum willingness to sellMarket price
F$60$30
B4530
A3530
P2530
Ali1030

From this table, it is clear that the minimum willingness to sell price of “F“, “B”, and “A” is greater than the market price or actual pay. Therefore, they will not be ready to sell the product with the given market price. Thus, they can be ignored from the total producer surplus calculation.

The calculation of producer surplus with market price $30 is given as follows:

Producer surplus=((Market priceWilling price to sellP)+(Market priceWilling price to sellA))=((3025)+(3010))=5+20=25

The total producer surplus is $25.

The total surplus can be calculated as follows:

Total surplus=Producer surplus+Consumer surplus=25+50=75

The total surplus is $75.

Table 3 shows the market price spent and the maximum wiliness to pay by the different potential buyers as follows:

Table 3

Potential buyersMaximum willingness to payMarket price
B$60$15
J4515
S3515
Jam2515
F1015

From this table, it is clear that the maximum willingness to pay for “F” is less than the market price or actual pay, and he would not consume at the market price. Therefore, he can be ignored from the total consumer surplus calculation.

the calculation of consumer surplus with market price $15 is given as follows:

Consumer surplus=((Willing priceBMarket price)+(Willing priceJMarket price)+(Willing priceSMarket price)+(Willing priceJamMarket price))=((6015)+(4515)+(3515)+(2515))=(45+30+20+10)=105

The total consumer surplus is 105.

Table 1 shows the market price spent and the minimum willingness to sell by the different potential buyers as follows:

Table 4

Potential buyersMinimum willingness to sellMarket price
F$6015
B4515
A3515
P2515
Ali1015

From this table, it is clear that the minimum willingness to sell price of “F“, “B”, “A”, and “F” is greater than the market price or actual pay. Therefore, they will not be ready to sell the product with the given market price. Thus, they can be ignored from the total producer surplus calculation.

The calculation of producer surplus with market price $15 is given as follows:

Producer surplus=((Market priceWilling price to sellAli))=(1510)=5

The total producer surplus is $5.

The total surplus can be calculated as follows:

Total surplus=Producer surplus+Consumer surplus=5+105=110

Total surplus is $110.

Economics Concept Introduction

Consumer surplus: Consumer surplus is the difference between the highest willing price of a consumer and the actual price that the consumer pays.

Producer surplus: It is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

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