E202Solutions5.1 - willing to pay to be able to buy and...

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Problem Set Five Solutions Chapter 7 1. Suppose the weekly demand and supply curves for used DVDs in Lincoln , Nebraska, are shown in the diagram. Calculate and graph : a. The weekly consumer surplus. Answer : Consumer surplus is the triangular area between the demand curve and the price line. Consumer surplus is 0.5 ($1.50/unit) (6 units/week) = $4.50/week. b. The weekly producer surplus. Answer : Producer surplus is the triangular area between the supply curve and the price line. Producer surplus is 0.5 ($4.50/unit) (6 units/week) = $13.50/week. c. The maximum weekly amount that producers and consumers in Lincoln (as a group) would be
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Unformatted text preview: willing to pay to be able to buy and sell used DVDs in any given week. Answer : 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. The total economic surplus generated is $4.50 + $13.50 = $18/week. 2. Refer to Problem 1. Suppose a coalition of students from Lincoln High School succeeds in persuading the local government to impose a price ceiling of $7.50 on used DVDs, on the grounds that local suppliers are taking advantage of teenagers by charging exorbitant prices....
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