Microeconomics
Microeconomics
2nd Edition
ISBN: 9781259813337
Author: KARLAN, Dean S., Morduch, Jonathan
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 15PA
To determine

(a)

To calculate the total surplus, when the demand curve is D1.

Expert Solution
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Explanation of Solution

The market price at equilibrium is calculated by the intersection of the demand curve and the supply curve.

The demand curve D1 and the supply curve intersect at the point, where the market price is $14.

The total surplus is divided into two parts: Consumer surplus and Producer surplus.

The consumer surplus is represented by the area above the price line and below the demand curve, while the producer surplus is represented by the area under the price line and above the supply curve.

The consumer surplus and producer surplus are shown below:

Microeconomics, Chapter 5, Problem 15PA , additional homework tip  1

  Total Surplus = Consumer Surplus + Producer Surplus

The consumer surplus is calculated as follows:

  ConsumerSurplus=12×(2214)×(1000)ConsumerSurplus=12×8×100ConsumerSurplus=400

The producer surplus is calculated as follows:

  ProducerSurplus=12×(146)×(1000)ProducerSurplus=12×8×100ProducerSurplus=400

  TotalSurplus=400+ 400TotalSurplus=800

To determine

(b)

To calculate the total surplus, when the demand curve is D2.

Expert Solution
Check Mark

Explanation of Solution

The market price at equilibrium is calculated by the intersection of the demand curve and the supply curve.

The demand curve D2 and the supply curve intersect at the point where the market price is $10.

The consumer surplus and producer surplus is shown below:

Microeconomics, Chapter 5, Problem 15PA , additional homework tip  2

  Total Surplus = Consumer Surplus + Producer Surplus

  ConsumerSurplus=12×(1610)×(500)ConsumerSurplus=12×6×50ConsumerSurplus=150

  ProducerSurplus=12×(106)×(500)ProducerSurplus=12×4×50ProducerSurplus=100

  TotalSurplus=150+100TotalSurplus=250

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