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ECO110 Assign 2

# ECO110 Assign 2 - Chapter 5 11 The table gives the demand...

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Chapter 5 11. The table gives the demand and supply schedules for sandwiches. a. What is the maximum price that consumers are willing to pay for the 200th sandwich? The Maximum price the consumer is willing to pay for the 200 th sandwich is \$2. See graph above. b. What is the minimum price that producers are willing to accept for the 200th sandwich? The minimum price the producer is willing to except for the 200 th sandwich is \$4. See graph above. c. Are 200 sandwiches a day less than or greater than the efficient quantity? 200 sandwiches are greater than the efficient quantity of 150 sandwiches at \$3 each. The MB (the maximum price consumers will pay) is less than the MC (the minimum price suppliers will accept).See graph above. d. If the sandwich market is efficient, what is the consumer surplus, the producer surplus, and the total surplus? If the market is efficient: The consumer surplus = Marginal Benefit – Price Paid = 150 sandwiches x \$3 = \$225 Quantity Bought 2 The producer surplus = Price received – minimum supply price = 150 x \$3 = \$225 2 2 Total surplus = Consumer surplus + Producer surplus = \$225 + \$225 = \$450 Angela Adams Student Number: 11429687 Page 1 Price Quantity demanded Quantity supplied (dollars per sandwich) (sandwiches per day) 0 300 0 1 250 50 2 200 100 3 150 150 4 100 200 5 50 250 6 0 300

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e. If sandwich makers produce 200 a day, what is the deadweight loss? If the sandwich makers produce 200 a day and consumers are willing to only pay \$2 for a sandwich that costs \$4 to produce. By producing the 200 th sandwich, \$2 of resources are wasted. The deadweight loss is \$50. Deadweight loss is the sum of the consumer surplus and producer surplus that is lost because the quantity produced is not the efficient quantity. The deadweight loss equals the quantity (200 − 150) multiplied by (\$4 − \$2)/2, which is \$50. The green triangle below shows the deadweight loss, which reduces the total surplus to less than its maximum. f. If the demand for sandwiches increases but sandwich makers continue to produce 200 a day, which they sell for the price that buyers are willing to pay, what happens to producer surplus and deadweight loss? If the demand for sandwiches increases and the market continues to produce 200 sandwiches, which they sell for the price that buyers are willing to pay the consumer surplus increases, the producer surplus increases, and the total surplus increases. Angela Adams Student Number: 11429687 Page 2
Chapter 6 15. Renewable Energy Subsidies a. Draw a graph of the electricity market with a demand curve and two sources of supply — renewable and nonrenewable. Derive the market supply curve, and show the equilibrium price and equilibrium quantity. Please see graph below. b. On your graph in part (a), show the effects of these subsidies on the price and the quantity

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ECO110 Assign 2 - Chapter 5 11 The table gives the demand...

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