Question

What is the motivation for calculating consumer surplus, producer surplus, and total surplus? Assume the equilibrium...

What is the motivation for calculating consumer surplus, producer surplus, and total surplus?

Assume the equilibrium quantity in a competitive market is 16 and the equilibrium price is 8. Also assume the highest willingness to pay is 14 and the lowest cost is 3.

Calculate the consumer surplus, producer surplus, and total surplus for this market.

Homework Answers

Answer #1

Consumer surplus (CS) is the difference between maximum willingness to pay and actual price paid by consumers. Therefore, CS measures the welfare gain to consumers. Producer surplus (PS) is the difference between market price and minimum price acceptable to buyers. Therefore, PS measures the welfare gain to producers. Total surplus (TS) is the sum of CS and PS, therefore TS measures overall gain to society from a particular price-quantity combination.

Using given data,

CS = Area between demand curve & price = (1/2) x (14 - 8) x 16 = 8 x 6 = 14

PS = Area between supply curve & price = (1/2) x (8 - 3) x 16 = 8 x 5 = 40

TS = CS + PS = 14 + 40 = 54

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Define consumer surplus and producer surplus. Explain why the equilibrium price and quantity maximizes the...
1. Define consumer surplus and producer surplus. Explain why the equilibrium price and quantity maximizes the sum of producer plus consumer surplus (the total surplus).
What is the consumer surplus (CS) and producer surplus (PS) in a competitive market with a...
What is the consumer surplus (CS) and producer surplus (PS) in a competitive market with a market demand curve defined by p = 5 - q and a market supply curve defined by p = (1/4)q? (Recall that the formula for calculating the area of a triangle is (1/2) * b * h, where b is the length of the triangle's base and h is the triangle's height.) a.CS = 16 & PS = 4 b.CS = 2 & PS...
Demand for Dok P=60-0.5Q supply P=12+0,5Q 1.what is the equilibrium price, quantity, consumer surplus and producer...
Demand for Dok P=60-0.5Q supply P=12+0,5Q 1.what is the equilibrium price, quantity, consumer surplus and producer surplus. 2.suppose the demand curve increases by 12 unit at given price. Hold everything constant, what is new equilibrium price, quantity, consumer surplus and producer surplus. 3.use the original demand and supply curve in part one. assume economy can trade with world for 12 unit. What is the market price for local consumers if the world price is 24. What is price local producer...
Saved The market for carrot is at equilibrium. The consumer surplus is 50 units and the...
Saved The market for carrot is at equilibrium. The consumer surplus is 50 units and the producer surplus is 100 units. Which of the following statements is correct? Question 14 options: 1) The market is not efficient because consumer surplus and producer surplus are not equal. 2) The market is efficient. 3) When the market is at equilibrium, consumer surplus must be equal to producer surplus. 4) The market is not at equilibrium because the consumer surplus and producer surplus...
Is the contribution total surplus always positive? why or why not? what is total surplus, consumer...
Is the contribution total surplus always positive? why or why not? what is total surplus, consumer surplus, producer surplus at equilibrium If coffee was fixed at $3 what is total surplus and is there and deadweight loss Is there another way to consume the same number of cups of coffee and increase total surplus? why cups of coffee marginal benefit marginal cost total surplus consumer surplus producer surplus 1 4.00 1.50 8 2.50 5.50 2 3.00 1.75 6 1.25 4.75...
What happened to the producer surplus and the consumer surplus of a market when there is...
What happened to the producer surplus and the consumer surplus of a market when there is a quota limit? I wonder where does the quota rent square go to, consumer surplus or producer surplus?
How can you find producer surplus, consumer surplus, total surplus in a oligopoly? Also provide a...
How can you find producer surplus, consumer surplus, total surplus in a oligopoly? Also provide a graphical explanation.
What are consumer surplus and producer surplus? Where are they on the market curve?
What are consumer surplus and producer surplus? Where are they on the market curve?
Which of the following statements are true for the consumer and producer surplus? Select one or...
Which of the following statements are true for the consumer and producer surplus? Select one or more: a. When firms are able to sell a good at a price higher than the marginal cost of production, they are getting producer surplus. b. When consumers are able to buy a product at a price lower than its marginal value of consumption, it is called consumer surplus. c. Consumer surplus is the difference between the price of a product and consumers' valuation...
1. Define both "consumer surplus" and "producer surplus". 2. Determine the amount of consumer surplus generated...
1. Define both "consumer surplus" and "producer surplus". 2. Determine the amount of consumer surplus generated in the following situation: Robert goes to a Subway store to buy a "footlong tuna sandwich" for which he is willing to pay the usual $8. When he is paying for it, he learns that the "footlong tuna sandwich" is discounted by 25%. 3. Determine the amount of producer surplus generated in the following situation: Cynthia lists her acoustic guitar on eBay. She sets...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT