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Unformatted text preview: FGH Page 6 of 33 ©Prep101 www.prep101.com/freestuff Use the following graph of a competitive market for good Z to answer questions 8 and 9:
10 S 8
5 11 14 17 Quantity of Z Q8. Which one of the following is true, if price is $6?
e) The equilibrium quantity is 5
Marginal cost exceeds marginal benefit
There is no consumer surplus
There is no producer surplus
None of the above Solution: e) None of the above
At price 6, MC=MB and the equilibrium quantity is 11; the producer surplus equals the
area to the left of the supply curve and below price; the consumer surplus equals the area
to the left of the demand curve and above the price. Q9. What is the deadweight loss if only 5 units of good Z are produced?
$66 Solution: a) $18
In a competitive market, 11 units would be produced. If only 5 units are produced,
Deadweight loss = (1/2)*(11 – 5)*(10 - 4) = $18 Page 7 of 33 ©Prep101 www.prep101.com/freestuff Q10. Suppose oil producing countr...
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- Fall '07