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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: Price ($) 10 S 8 7 6 4 D 5 11 14 17 Quantity of Z Q8. Which one of the following is true, if price is $6? a) b) c) d) 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? a) b) c) d) e) $18 $36 $30 $6 $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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