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Consider a market with a perfectly vertical demand curve, and a perfectly horizontal supply curve. Calculate...

Consider a market with a perfectly vertical demand curve, and a perfectly horizontal supply curve. Calculate the consumer surplus, and the producer surplus, in this market.

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Answer #1

Since the consumer surplus is the area below the demand curve and above the price. A it can be seen in the diagram that above the price and below the demand curve, the area is infinite. Hence the area of the consumer surplus will be infinite.

Producer surplus is the area below the price and above the supply curve, but price and supply curve is same. Hence there is no area between price and supply curve.

Hence the producer surplus is 0.

Total surplus= CS+PS

=infinitity +0

=Infinity

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