Efficiency and Exchange
Answers to Text Questions and Problems
Answers to Problems
1a. Consumer surplus is the triangular area between the demand curve and the price line.
Its area is equal to 0.5bh, where b is the base of the triangle and h is the height.
The
base is 6 units and the height is 1.5 units, measured in dollars. Therefore, consumer
surplus is 0.5($1.50/unit)(6 units/wk), or $4.50 per week.
b. Producer surplus is the triangular area between the supply curve and the price line.
Using the baseheight formula, it is (0.5)($4.50/unit)(6 units/wk), or $13.50 per week.
c. The maximum weekly amount that consumers and producers together would be
willing to pay to trade in used DVDs is the sum of gains from trading in used
DVDs—namely, the total economic surplus generated per week, which is $18 per
week.
2a. At a price of $7.50, the quantity supplied per week = 2. The quantity demanded at
this price is 18 per week, which implies a weekly shortage of 16 used DVDs.
b. The weekly economic surplus lost as a result of the price ceiling is the area of the
darkshaded triangle in the diagram, or the sum of the areas of the two triangles ABC
and ACD. Using the information given in the graph, this amount is calculated as
(0.5)(4)(1) + (0.5)(4)(3) = $8/wk.
12
48
6
6
Quantity
Price
P=6+0.75Q
P=120.25Q
1
6
2
3
A
B
C
D
4
3a. When there is no charge for the tour, the surplus enjoyed by someone who takes it
equals his or her reservation price for the tour. If the warden operates the tour on a
firstcomefirst served basis, Faith, Penny, and Fran will be turned away. The
combined consumer surplus when the four who arrive first take the tour is $20 + $14
+ $30 + $15=$79.
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View Full Documentb. An offer of $15 compensation generates 3 volunteers to return another day: Fran,
Jack and Jon.
The four who go on the tour receive a total consumer surplus of $40 +
$30 + $20 + $17=$107.
The warden pays $45 in compensation payments to the three
volunteers, which causes him a loss in economic surplus of $45 that is exactly offset
by the gain in economic surplus to the three volunteers.
Total economic surplus from
the tour operation is now $107—$28 higher than before.
c. The compensation policy is more efficient than the firstcomefirstserved policy
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 Spring '09
 HAMILTON
 Microeconomics, Consumer Surplus, Supply And Demand, producer, total economic surplus

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