ch7ak - Econ 2 Principles of Economics Chapter 7 Questions...

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1 Econ 2: Principles of Economics Chapter 7 Questions for Review 3. Figure 1 shows producer and consumer surplus in a supply-and-demand diagram. Figure 1 5. The invisible hand of the marketplace guides the self-interest of buyers and sellers into promoting general economic well-being. Despite decentralized decision making and self-interested decision makers, free markets lead to an efficient outcome. Problems and Applications 1. If an early freeze in California sours the lemon crop, the supply curve for lemons shifts to the left, as shown in Figure 2. The result is a rise in the price of lemons and a decline in consumer surplus from A + B + C to just A. So consumer surplus declines by the amount B + C. Figure 2
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2 In the market for lemonade, the higher cost of lemons reduces the supply of lemonade, as shown in Figure 3. The result is a rise in the price of lemonade and a decline in consumer surplus from D + E + F to just D, a loss of E + F. Note that an event that affects consumer surplus in one market often has effects on consumer surplus in other markets.
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