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5 EFFICIENCY AND EQUITY Answers to the Problems 1. a. The market demand schedule equals the sum of the quantity demanded by Ben, Beth, and Bo at each price. So, when the price is \$3 per mile, the market quantity demanded is 85; when the price is \$4 per mile, the market quantity demanded is 65; when the price is \$5 per mile, the marker quantity demanded is 45; when the price is \$6 per mile, the market quantity demanded is 25; when the price is \$7 per mile, the market quantity demanded is 15; when the price is \$8 per mile, the market quantity demanded is 5; and when the price is \$9 per mile, the market quantity demanded is 0. b. The marginal social benefit when the quantity is 50 miles is \$4.75 per mile. The marginal social benefit can be determined from the demand (and marginal social benefit) curve as the maximum price that consumers will pay for the quantity. Using the demand schedule shows that the maximum price consumers will pay for 50 miles is \$4.75 per mile. c. Ben’s consumer surplus is \$62.50; Beth’s consumer surplus is \$40.00; and, Bo’s consumer surplus is \$20.00. When the price is \$4 per mile, Ben buys 25 miles. Ben’s consumer surplus is the triangular area under his demand curve and above the price. The demand curve is linear, so Ben’s consumer surplus is 1/2 × (\$9 \$4) × 25, which equals \$62.50. When the price is \$4 per mile, Beth buys 20 miles. Beth’s consumer surplus is the triangular area under her demand curve and above the price. The demand curve is linear, so Beth’s consumer surplus is 1/2 × (\$8 \$4) × 20, which equals \$40.00 When the price is \$4 per mile, Bo buys 20 miles. Bo’s consumer surplus is the triangular area under his demand curve and above the price. The demand curve is linear, so Bo’s consumer surplus is 1/2 × (\$6 \$4) × 20, which equals \$20.00. d. The economy’s consumer surplus is the sum of Ben’s consumer surplus plus Beth’s consumer surplus plus Bo’s consumer surplus, or \$122.50. 2. a. The minimum supply-price equals the lowest price at which a producer is willing to produce the given quantity. Ann’s minimum supply-price for 10 rides is \$15.00; Arthur’s minimum supply-price is \$17.50; and, Abby’s minimum supply-price is \$20.00. b. Ann has the largest producer surplus. When the price is \$17.50, Ann produces the largest quantity. And, at any quantity for which Ann produces rides, her supply schedule shows that her minimum supply-price (which is equal to her marginal cost) is lower than Arthur’s and Abby’s minimum supply-price. c. The marginal social cost of producing 45 rides a day is the minimum supply-price from the market supply schedule. From the table, the minimum supply-price is \$20.00 because at this is the lowest price for which 45 rides will be supplied. d.

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