Tute07 - answer

Tute07 - answer - ECF1100: MICROECONOMICS Answers to...

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ECF1100: MICROECONOMICS Answers to tutorial 7 Chapter 7, Problem 1 a. Consumer surplus is the triangular area between the demand curve and the price line. Its area is equal to 0.5bh, where b is the base of the triangle and h is the height. In this example, 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), or $4.50 per week. b. Producer surplus is the triangular area between the supply curve and the price line. Using the base-height formula, it is: (0.5)($4.50/unit)(6 units/week), or $13.50 per week. c. 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. Chapter 7, Problem 2 a. At a price of $7.50, the quantity supplied per week equals 2 units. The quantity demanded at this price is 18 per week, which implies a weekly shortage of 16 used DVDs. b. The weekly economic surplus lost as a result of the price ceiling is the area of the dark-shaded triangle in the diagram. Because the price on the demand curve is 1.5 when Q = 2 (this was the assumption I asked you to make), the area is 0.5*(11.5 –
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Tute07 - answer - ECF1100: MICROECONOMICS Answers to...

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