Problem Set 3

# Problem Set 3 - Econ 221 Practice Problem Set 3(Chapter 4...

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Econ. 221 Practice Problem Set 3(Chapter 4), Key 1. Use the diagram of the demand curve below to answer the following questions. a. If the market price is P 2 , what is the quantity demanded? Q 2 b. What is the maximum amount that the consumer is willing to pay for the quantity in part (a)? A+B+D c. What is the consumer’s total expenditure on the good if the market price is P 2 ? P 2 x Q 2 or B+D d. What is his consumer surplus at price P 2 ? A e. What is the increase in consumer surplus when price falls from P 2 to P 1 ? B + C f. What portion of this increase in consumer surplus represents the gains of those who would bought at the original price, P 2 ? B g. What portion of the increase in consumer surplus represents the gains to consumers who are persuaded to buy by the lower price, P 1 ? C 2. Use the diagram of the supply curve below to answer the following questions. a. If the market price is P 1 , what is the quantity supplied? Q 1 b. What is the minimum amount the supplier requires in order to produce the quantity in part (a)? The area D. c. If a seller is able to sell all her output, what is total sales revenue if price is P 1 ? P 1 x Q 1 or C+D d. What is the producer surplus at price P 1 ? C e. What is the increase in producer surplus when price rises from P 1 to P 2 ? A + B f. What portion of this increase represents the gains of those who would have supplied the good

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## This note was uploaded on 05/10/2010 for the course ECON 221 taught by Professor Ramoo during the Spring '10 term at Diablo Valley College.

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Problem Set 3 - Econ 221 Practice Problem Set 3(Chapter 4...

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