Subpart (a):
The consumer surplus , total surplus and deadweight loss .
Subpart (a):
Explanation of Solution
Figure -1 illustrates the
In figure -1 panel (a) and (b), the horizontal axis measures the quantity of bags and the vertical axis measures the
The inverse demand function can be derived as follows:
The inverse demand functions of
The inverse supply curve can be calculated as follows:
The inverse supply functions of
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:
The total surplus is $800.
The consumer surplus can be calculated as follows:
The consumer surplus is $400.
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.
Subpart (b):
The consumer surplus, total surplus and deadweight loss.
Subpart (b):
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.
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.
The producer’s new willing price is $35.
The deadweight loss can be calculated as follows:
The deadweight loss is $50.
The total surplus can be calculated as follows:
The total surplus is $750.
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):
The consumer surplus, total surplus and deadweight loss.
Subpart c):
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.
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.
The producer new willing price is $59.
The deadweight loss can be calculated as follows:
The deadweight loss is $98.
The total surplus can be calculated as follows:
The total surplus is $702.
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.
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Chapter 4 Solutions
Microeconomics
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Microeconomics: Principles & PolicyEconomicsISBN:9781337794992Author:William J. Baumol, Alan S. Blinder, John L. SolowPublisher:Cengage Learning