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E202PracticeExam2.9

# E202PracticeExam2.9 - Answer At a price of \$50 consumers...

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b. Calculate and graph (above) consumer surplus, producer surplus, and total economic surplus. What is the most that consumers and producers together would be willing to pay for the right to be able to buy and sell used textbooks? Answer : Consumer surplus is the triangular area between the demand curve and the price line. Consumer surplus is 0.5 (\$30) (30,000) = \$450,000/semester. Producer surplus is the triangular area between the supply curve and the price line. Producer surplus is 0.5 (\$60) (30,000) = \$900,000/semester. Total economic surplus is the sum of consumer surplus and producer surplus \$450,000 + 900,000 = \$1,350,000. Consumers and producers together would be willing to pay 1.35 million dollars for the right to be able to buy and sell used textbooks! 6. Refer to Problem 6. Suppose a price ceiling of \$50 is placed on the market for used textbooks. a. Calculate the weekly shortage of used textbooks that will result from this policy.
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Unformatted text preview: Answer : At a price of \$50, consumers would demand 40,000 used textbooks as 50 = 90 - Q. Producers would supply 25,000 used textbooks as 50 = 2Q (and Q measured in 10,000s). There will be a shortage of 40,000 - 25,000 = 15,000 used textbooks per semester. b. Calculate and graph consumer surplus, producer surplus, and total economic surplus. Would producer support the price ceiling? Would consumers support the price ceiling? Answer : Consumer surplus is 0.5 (\$25) (25,000) + (\$15) (25,000) = \$687,500. Producer surplus is 0.5 (\$50) (25,000) = 625,000. Total economic surplus is \$687,500 + \$625,000 = \$1,312,500. Producers would not support the price ceiling because producer surplus falls. Consumers would support the price ceiling because consumer surplus rises....
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