3. (1 pt). Use the ideas of consumer surplus and producer surplus to explain why economists saycompetitive markets are efficient. Why are below- or above-equilibrium levels of outputinefficient, according to these two sets of ideas?When the consumers' utility goes beyond, goes below) the price paid, consumer surplus isgenerated. Likewise, when producers receive a price (greater, smaller ) than marginal cost,producer surplus is created. By producing up to the point where MB = MC, the maximumpotential consumer surplus (CS) and producer surplus (PS) is generated. Producing (more. less )than the equilibrium level means that potential surplus is left unrealized (underproduction).Overproduction subtracts from the surplus because society values the use of the additionalresources in other pursuits more than it values them in consumption of that good.

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Answered: 3. C1 pt). Use the ideas of consumer…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter7: Consumers, Producers, And The Efficiency Of Markets

Section: Chapter Questions

Problem 6PA

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6. Consider a market where the supply is given by QS = P - 2 and the demand is given by QD = 10 -P. (a) Find the competitive equilibrium. What is the consumer, the producer, and the aggregate surplus? (b) Suppose the government wants to encourage production by instituting a subsidy of 2¥ per unit. What is the impact of the subsidy on the quantity traded, the prices, the consumer surplus and the producer surplus? (c) Suppose the subsidy the government pays will have to be raised by levying lump-sum tax on the consumers. What is the impact of the subsidy on the consumer's welfare?What is the impact on the welfare if the tax burden is shared equally by the consumers and the producers?
1. Define "consumer surplus" and "producer surplus." Consumer surplus (CS) is the benefit surplus received by a consumer or consumers through market transactions. A CS arises because all consumers pay the equilibrium price even though some consumers would be willing to pay more. CS is measured as the difference between the (maximum. minimum ) price a consumer is (or consumers are) willing to pay (WTP) ( plus, minus , the same as ) the actual price. Consumer surplus is (directly, inversely) related to price. Producer surplus (PS) is the benefit surplus received by a producer or producers through market transactions. A PS arises because some producers are willing to sell a product at a lower price than the equilibrium price. PS is measured as the difference between the actual price the producer receives (or producers receive) and the (maximum, minimum ) price a producer is (or producers are) willing to accept (WTA) as a selling price. Producer surplus is directly, inversely) related to…
11. Suppose that you develop a software product called "EconSolver" which takes in the parameters of an economic problem and first determines how to solve it and then solves it. You have two potential markets for this product: corporations (c) and students (s). The demand schedules you have estimated are: Price Dc 10 11 12 13 14 15 16 DS 0 2 4 6 8 10 12 Production, distribution and software support costs are estimated to be $50 per copy for each type of customer. 300 275 250 225 200 175 150 (i) Assume that you could only charge one price for this product regardless of customer type. What would that price be and how much profit would you make? (ii) Assume that you could practice 3rd degree price discrimination in this market. What price would you charge each customer type and what would your total profits be? (iii) Use the language of economics to explain why 3rd degree price discrimination works in this example. (iv) If you decided to practice 3rd degree price discrimination here, list…
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Table: Demand Schedule of Gadgets Price of a Gadget $10 9 8 7 6 5 4 3 2 1 0 Quantity of Gadgets Demanded Reference: Ref 31-1 0 100 200 300 400 500 600 700 800 900 1,000 (Table: Demand Schedule for Gadgets) Examine the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray, who split the production of output equally. Each firm can produce gadgets at a marginal cost and fixed cost of $0. The table shows the market demand schedule for gadgets. If these two producers formed a cartel and acted to maximize total industry profits, each firm's output would be _____and each firm's profit would be Select one: O a. 500; $2,500 O b. 250; $1,250 O c. 1,000; $500 O d. 1,000; $10,000
2. Consider a market where supply is given by Xs(p) = 400p and there are 800 identical consumers, each with demand function x; = 6-p where p denotes the good's price. (a) Find the aggregate demand for the good, Xa(p). (b) Determine the equilibrium price and quantity. (c) Calculate consumer and producer surplus and total surplus.
3. The price-supply and price-demand equations of a certain product are given by p = S(x) = 15 +0.1x + 0.003x², p = D(x) = M – Nx Suppose that the equilibrium price level is P55. (a) Find the producer surplus at the equilibrium price level. (b) If the consumer surplus is equal to the producers surplus at the equilibrium price level, find M and N.
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8. Consumer and Producer Surplus Suppose Charles is the only seller in the market for bottled water and Yakov is the only buyer. The following lists show the value Yakov places on a bottle of water and the cost Charles incurs to produce each bottle of water: Yakov's Value Value of first bottle: $7 Value of second bottle: $5 Value of third bottle: $3 Value of fourth bottle: $1 Charles's Costs Cost of first bottle: $1 Cost of second bottle: $3 Cost of third bottle: $5 Cost of fourth bottle: $7 The following table shows their respective supply and demand schedules: Price Quantity Demanded Quantity Supplied $1 or less 4 о $1 to $3 3 1 $3 to $5 2 2 $5 to $7 1 3 More than $7 0 4 Use Charles's supply schedule and Yakov's demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. Enter these values in the following table. Price Quantity Demanded Quantity Supplied 2 4 A price of brings supply and demand into equilibrium. At the equilibrium price, consumer…
8. Consumer and Producer Surplus Suppose Gilberto is the only seller in the market for bottled water and Charles is the only buyer. The following lists show the value Charles places on a bottle of water and the cost Gilberto incurs to produce each bottle of water: Charles's Value Gilberto's Costs Value of first bottle: $10 Cost of first bottle: $1 Value of second bottle: $7 Cost of second bottle: $3 Value of third bottle: $3 Cost of third bottle: $7 Value of fourth bottle: $1 Cost of fourth bottle: $10 The following table shows their respective supply and demand schedules: Price Quantity Supplied Quantity Demanded More than $10 4 $7 to $10 3 1 $3 to $7 2 2 $1 to $3 1 3 $1 or less 4
Zone Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according to these two sets of ideas? When the consumers' utility goes beyond, goes below) the price paid, consumer surplus is generated. Likewise, when producers receive a price (greater, smaller ) than marginal cost, producer surplus is created. By producing up to the point where MB = MC, the maximum potential consumer surplus (CS) and producer surplus (PS) is generated. Producing (more. less ) than the equilibrium level means that potential surplus is left unrealized (underproduction). Overproduction subtracts from the surplus because society values the use of the additional resources in other pursuits more than it values them in consumption of that good.
8. Consumer and Producer Surplus Suppose Jacques is the only seller in the market for bottled water and Darnell is the only buyer. The following lists show the value Darnell places on a bottle of water and the cost Jacques incurs to produce each bottle of water: Darnell's Value Jacques's Costs Value of first bottle: $10 Cost of first bottle: $1 Value of second bottle: $7 Cost of second bottle: $3 Value of third bottle: $3 Cost of third bottle: $7 Value of fourth bottle: $1 Cost of fourth bottle: $10 The following table shows their respective supply and demand schedules: Price Quantity Demanded Quantity Supplied $1 or less $1 to $3 $3 to $7 $7 to $10 4 3 1 2 2 1 3 More than $10 4 Use Jacques's supply schedule and Darnell's demand schedule to find the quantity supplied and quantity demanded at prices of $2, $6, and $9. Enter these values in the following table. Price Quantity Demanded Quantity Supplied 2 1 3 6 2 2 3 1 A price of - brings supply and demand into equilibrium. At the…

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3. C1 pt). Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, ccording to these two sets of ideas?