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Market for Refurbished Washing Machines-1

# Market for Refurbished Washing Machines-1 - Market for...

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Market for Refurbished Washing Machines Each person demands a washing machine at the price next to their name. Jose \$700 Richard \$600 Amy \$500 Anthony \$400 Nathan \$300 Darrell \$200 Geoffrey \$100 Each person is willing to supply a washing machine at the price next to their name. Susan \$100 Betty \$200 Cathy \$300 Darva \$400 Emily \$500 Francis \$600 Germaine \$700 The market equilibrium is shown in the following figure. \$100 \$700 3 \$400 Q P

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At the equilibrium: x Consumer Surplus (CS) is \$600 o Jose’s CS is \$300 o Richards CS is \$200 o Amy’s CS is \$100 x Producer Surplus (PS) is \$600 o Susan’s PS is \$300 o Betty’s PS is \$200 o Cathy’s PS is \$100 x Total Welfare (TW)=CS+PS=\$1,200
Example 1: Consider a price ceiling of \$200. At this price producers will only be willing to supply 2 washing machines, but consumers will demand 5. \$200 \$100 \$700 3 5 2 \$400 Q P Assuming that only the consumers with the highest valuations get to buy refurbished wash machines. x CS is \$900 o Jose’s CS is \$500 o Richards CS is \$400 x PS is \$100 (All of the PS is Susan’s) x TW is \$1000 Comparing the TW at the equilibrium and at the price ceiling we see that the deadweight loss resulting form the price ceiling is \$200. This deadweight loss results from the fact the quantity is too low under the price ceiling.

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