chapter5ans

chapter5ans - Answer Guide for Ch 5 1. a. The market demand...

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Answer Guide for Ch 5 1. a. The market demand schedule equals the sum of the quantity demanded by Ben, Beth, and Bo at each price. So, when the price is $3 per mile, the market quantity demanded is 85; when the price is $4 per mile, the market quantity demanded is 65; when the price is $5 per mile, the marker quantity demanded is 45; when the price is $6 per mile, the market quantity demanded is 25; when the price is $7 per mile, the market quantity demanded is 15; when the price is $8 per mile, the market quantity demanded is 5; and when the price is $9 per mile, the market quantity demanded is 0. b. The marginal social benefit when the quantity is 50 miles is $4.75 per mile. The marginal social benefit can be determined from the demand (and marginal social benefit) curve as the maximum price that consumers will pay for the quantity. Using the demand schedule shows that the maximum price consumers will pay for 50 miles is $4.75 per mile. c. Ben’s consumer surplus is $62.50; Beth’s consumer surplus is $40.00; and, Bo’s consumer surplus is $20.00. When the price is $4 per mile, Ben buys 25 miles. Ben’s consumer surplus is the triangular area under his demand curve and above the price. The demand curve is linear, so Ben’s consumer surplus is 1/2 ± ($9 ² $4) ± 25, which equals $62.50. When the price is $4 per mile, Beth buys 20 miles. Beth’s consumer surplus is the triangular area under her demand curve and above the price. The demand curve is linear, so Beth’s consumer surplus is 1/2 ± ($8 ² $4) ± 20, which equals $40.00 When the price is $4 per mile, Bo buys 20 miles. Bo’s consumer surplus is the triangular area under his demand curve and above the price. The demand curve is linear, so Bo’s consumer surplus is 1/2 ± ($6 ² $4) ± 20, which equals $20.00. d.
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chapter5ans - Answer Guide for Ch 5 1. a. The market demand...

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