Economics (Irwin Economics)
Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 4, Problem 4P

Subpart (a):

To determine

The consumer surplus, total surplus and deadweight loss.

Subpart (a):

Expert Solution
Check Mark

Explanation of Solution

Figure -1 illustrates the market equilibrium that is arrived at equilibrium between the demand and supply curve.

Economics (Irwin Economics), Chapter 4, Problem 4P

In figure -1 panel (a) and (b), the horizontal axis measures the quantity of bags and the vertical axis measures the price per bag. The curve ‘S’ represents the supply and the curve ‘D’ represents the demand.

The inverse demand function can be derived as follows:

Price=PriceAt point 'a'+Equilibrium pricePriceAt point 'a'Q1QuantityAt point 'a'(Quantity)=85+4585200(Quantity)=852(Quantity)

The inverse demand functions of price=852(Quantity) .

The inverse supply curve can be calculated as follows:

Price=PriceAt point 'c'+Equilibrium pricePriceAt point 'c'Q1QuantityAt point 'c'(Quantity)=5+455200(Quantity)=5+2(Quantity)

The inverse supply functions of price=5+2(Quantity) .

The inverse demand function and supply functions reveal that the producer willing price is $5 and the consumer willing price is $85. The equilibrium price is $45. The total surplus can be calculated as follows:

Total surplus=12(Consumer willing priceProducer willing price)×Equilibrium quantity=12(855)×20=(80)×10=800

The total surplus is $800.

The consumer surplus can be calculated as follows:

Consumer surplus=12(Consumer willing priceEquilibrium price)×Equilibrium quantity=12(8545)×20=(40)×10=400

The consumer surplus is $400.

Economics Concept Introduction

Concept Introduction:

Consumer surplus: It refers to the variation in the probable charge of a product that the consumer intends to pay and the actual price that he has already paid.

Producer surplus: It refers to the variation in the probable price that the producer intends to sell and the actual price that he has already sold.

Subpart (b):

To determine

The consumer surplus, total surplus and deadweight loss.

Subpart (b):

Expert Solution
Check Mark

Explanation of Solution

The consumer willing price at Q2 level of output (15 units) can be calculated by substituting the Q2 level of output to the inverse demand function.

Price=852(15)=8530=55

The consumer new willing price is $55.

The producer willing price at Q2 level of output (15 units) can be calculated by substituting the Q2 level of output into the inverse supply function.

Price=5+2(15)=5+30=35

The producer’s new willing price is $35.

The deadweight loss can be calculated as follows:

Deadweight loss=12(Consumer new willing priceProducer new wlling price)×(Equilibrium quantityNew quantity)=12(5535)×(2015)=12(20)×(5)=50

The deadweight loss is $50.

The total surplus can be calculated as follows:

Total surplus=Initial total surplusDeadweight loss=80050=750

The total surplus is $750.

Economics Concept Introduction

Concept Introduction:

Consumer surplus: It refers to the variation in the probable charge of a product that the consumer intends to pay and the actual price that he has already paid.

Producer surplus: It refers to the variation in the probable price that the producer intends to sell and the actual price that he has already sold.

Subpart c):

To determine

The consumer surplus, total surplus and deadweight loss.

Subpart c):

Expert Solution
Check Mark

Explanation of Solution

The consumer willing price at Q3 level of output (27 units) can be calculated by substituting the Q3 level of output to the inverse demand function.

Price=852(27)=8554=31

The consumer new willing price is $31.

The producer willing price at Q3 level of output (127 units) can be calculated by substituting the Q3 level of output to the inverse supply function.

Price=5+2(27)=5+54=59

The producer new willing price is $59.

The deadweight loss can be calculated as follows:

Deadweight loss=12(Consumer new willing priceProducer new wlling price)×(Equilibrium quantityNew quantity)=12(3159)×(2027)=12(28)×(7)=98

The deadweight loss is $98.

The total surplus can be calculated as follows:

Total surplus=Initial total surplusDeadweight loss=80098=702

The total surplus is $702.

Economics Concept Introduction

Concept Introduction:

Consumer surplus: It refers to the variation in the probable charge of a product that the consumer intends to pay and the actual price that he has already paid.

Producer surplus: It refers to the variation in the probable price that the producer intends to sell and the actual price that he has already sold.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
MCB MCA The figure to the right shows the marginal cost of pollution abatement for two firms, A and B. The firms were initially abating 36 units of pollution each. Now they can trade pollution permits at a price of $32. As a result, firm permits and firm B A permits. Both firms are now better off and their total saving will be (Enter your answer rounded to the nearest $ whole number.) Dollars per Unit ($) 44 32 20 The Efficiency of Tradable Pollution Permits 31 36 41 Quantity of Pollution Abatement k -6°C Mostly clear Next
The figure to the right shows the marginal costs of abatement for an industry's only two firms, A and B. These firms were initially abating 30 units of pollution (the vertical dashed line). Now they can trade permits. The market price for permits under which an efficient pollution abatement will be achieved is $ rounded to the nearest whole number.) 192 176- 160- (Enter your response 144- 128- 112- 96 80- 64- 48- 32- 16 0 0 MC MCB 10 20 30 40 50 60 70 80 90 100 110 12 Pollution Abatement -6°C Mostly clear Next
The figure shows the private and social marginal costs and the marginal benefit of producing paper. The marginal social net benefit derived from the production of paper is OA. maximized at an output level of 35 because that is where MCp equals MB. OB. maximized at an output level of 25 because that is where MCs equal MB. OC. zero at an output level of 25 because that is where MCs equals MB. OD. zero at an output level of 35 because that is where MCp equals MB Dollars per Unit 25 35 Quantity of Paper -6°C Mostly clear D=MB Next MCS MC
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Microeconomic Theory
Economics
ISBN:9781337517942
Author:NICHOLSON
Publisher:Cengage
Text book image
MACROECONOMICS FOR TODAY
Economics
ISBN:9781337613057
Author:Tucker
Publisher:CENGAGE L
Text book image
Micro Economics For Today
Economics
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Economics For Today
Economics
ISBN:9781337613040
Author:Tucker
Publisher:Cengage Learning
Text book image
Survey Of Economics
Economics
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Cengage,
Text book image
Microeconomics: Principles & Policy
Economics
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:Cengage Learning