e201s9p10a - Eco 301 Problem Set 10 Name 23 June 2009...

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Eco 301 Name_____________________________________ Problem Set 10 23 June 2009 Suppose the weekly demand and supply curves for used DVDs in Lincoln, Nebraska, are as shown in the diagram. Calculate a. The weekly consumer surplus. Consumer surplus is the triangular area between the demand curve and the equilibrium price. 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/week) = \$4.50 per week. b. The weekly producer surplus. Producer surplus is the triangular area between the equilibrium price and the supply curve. Using the base-height formula, it is (0.5)(\$4.50/unit)(6 units/week) = \$13.50 per week. c. The maximum weekly amount that producers and consumers in Lincoln would be willing to pay to be able to buy and sell used DVDs in any given week. 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. 2 . Refer to problem 1. Suppose a coalition of students from Lincoln High School succeeds in persuading the local government to impose a price ceiling of \$7.50 on used DVDs, on the grounds that local suppliers are taking advantage of teenagers by charging exorbitant prices. a. Calculate the weekly shortage of used DVDs that will result from this policy.

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This note was uploaded on 02/16/2010 for the course ECONOMICS 420K taught by Professor Dusansky during the Spring '10 term at University of Texas.

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e201s9p10a - Eco 301 Problem Set 10 Name 23 June 2009...

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