Microeconomics

Chapter 7

Melissa buys one iPod because that $120 and also gets customer surplus of $80.a. What is she willingness come pay?

b. If she had actually bought the iPod on sale for $90, what would certainly her customer surplus have been?

c. If the price of an iPod to be $250, what would her consumer surplus have been?

Step-by-step solution

Step 1 the 4 consumer surplus is provided by the difference between the willingness the the customer to pay and also the really price the pays. Consumer surplus= preferably price ready to pay by the the person who lives – yes, really price paid.

You are watching: Melissa buys an iphone for $120 and gets a consumer surplus of $80.

Step 2 the 4 a) M’s consumer surplus= $80, actual price paid or sector price= 120. Maximum willing price can be calculated by submitting these values in the formula. Customer surplus= maximum price willing to pay by the buyer – yes, really price paid. $80 = preferably price willing to pay by the the person who lives – $ maximum price willing to pay by the buyer= $80 +$ 120 = $ 200. Maximum price willing to salary by the M is = $

Step 3 that 4 b) once actual price paid is $90. Customer surplus= preferably price willing to salary by the the person who lives – really price paid. Actual price paid= $ Maximum willing price =$ 200 customer surplus= $200 -$ = $ 110. Thus, as soon as actual price is $90, customer surplus is $

Step 4 of 4 c) If the actual industry price is $250, climate the consumer surplus is zero since the price that product is higher than the willingness to salary of the consumer. Thus, customer surplus is zero.

An beforehand freeze in California sours the lemon crop. Describe what happens to customer surplus inthe sector for lemons. Define what happens to customer surplus in the sector for lemonade.Illustrate your answers with diagrams.

Step-by-step solution

Step 1 the 6 industry for Lemon crop: If an early freeze in Cal City sours the lemon crop, climate this leads to a decrease in the it is provided of lemon in the market. Therefore, the supply curve will transition upwards implying decreasing it is provided at every price level. This is portrayed in the number below. The initial supply of lemon is given by curve S 1 , because of freeze the supply curve shifts towards left to type S 2 and the new equilibrium point is E 2. In ~ this point, the equilibrium price boosts to ns 2.Step 2 of 6 customer surplus: that is the difference in between the willingness come pay because that the commodity and price of the commodity. In graphical terms, the area above the price line and below the demand curve reflects the customer surplus. In this case, prior to freeze, the consumer surplus is provided by the area A+B+C. Due to a decrease in the it is provided the brand-new consumer surplus is A. The key reason that this to decrease in customer surplus is rise in price that the lemon due to shortages of lemon in the market. Thus, the customer surplus in the lemon industry decreases through B+C.Step 3 of 6 industry for Lemons

Initially the industry of lemon is in equilibrium at point E 1 and also the equilibrium price is p 1.The customer surplus in ~ this price is A+B+C.Now together the supply contracts, the it is provided curve move from S 1 come S 2. The new equilibrium isattained at E 2 and also the brand-new equilibrium price is ns 2. The customer surplus likewise contractsand it becomes A. Decrease in supply leader to decrease in customer surplus4. Action 4 that 6Market for Lemonade:Lemons are the key ingredient for lemonade. Therefore, a to decrease in the supply oflemons will certainly decrease the supply of lemonade. This results in a transition in the it is provided curve oflemonades in the direction of left developing S 2. Moreover, the brand-new equilibrium is attained ta pointE 2 wherein the price is ns 2 i beg your pardon is higher than the ahead level.

Figure (a)

Step 3 that 5

Figure (b)

Step 4 the 5

Figure (a): at price and also quantity , the producer surplus amounts to the area that triangleABC.

Step 5 that 5

Figure (b): once the price rises from to , the quantity offered rises indigenous toand the producer surplus rises to the area triangle ADF.

It is a warm day, and Bert is thirsty. Below is the worth he locations on a bottle of water:

a. Indigenous this information, derive Bert"s need schedule. Graph his need curve for bottled water.

b. If the price of a party of water is $4, how numerous bottles does Bert buy? just how much customer surplusdoes Bert acquire from his purchases? display Bert"s consumer surplus in her graph.

c. If the price drops to $2, exactly how does amount demanded change? exactly how does Bert"s customer surpluschange? present these changes in her graph.

Step-by-step solution

Step 1 the 6 (a) Bert’s demand scheduleStep 2 the 6

Price amount Demanded

More than $7 0 (Bottles)

$5 to $7 1

$3 to $5 2

$1 to $3 3

$1 or much less 4

Step 3 the 6 need curve of bottled waterStep 4 the 6

a. Native this information, have Ernie"s supply schedule. Graph his it is provided curve for bottled water.

b. If the price of a party of water is $4, how many bottles does Ernie produce and also sell?

How lot producer surplus does Ernie obtain from these sales? present Ernie"s producer sur-plus in yourgraph.

c. If the price rises come $6, just how does quantity supplied change? just how does Ernie"s producer surplus change?Show these alters in her graph.

Step-by-step solution

Step 1 that 4 (a) The it is provided schedule is a table that represents the quantity gave at various price level. The person-E’s it is provided schedule is as follows:

Step 2 of 4 The graph is as follows:

Step 3 of 4

(b) If the price that a bottled water is , person-E will certainly produce and also sell 2 bottles. Theproducer excess is calculate below:

In the over graph, Ernie’s producer excess is the bounded area ABCDEF.4. Step 4 of 4(c)

If the price rises to , the quantity supplied will increase to 3 bottles. The producersurplus is calculate below:

The person-E’s producer surplus is $9.In the above graph, person-E’s producer surplus is the bounded area ABCDEGHI.

Consider a sector in i m sorry Bert from problem 3 is the buyer and also Ernie from problem 4 isthe seller.

a. Use Ernie"s it is provided schedule and also Bert"s need schedule to find the amount sup-plied andquantity demanded at prices of $2, $4, and $6. Which of these prices brings sup-ply and demandinto equilibrium?

b. What are customer surplus, producer sur-plus, and also total excess in this equilibrium?

c. If Ernie produced and Bert consumed one fewer party of water, what would occur to complete surplus?

d. If Ernie produced and also Bert consumed one additional bottle the water, what would certainly hap-pen come totalsurplus?

Step-by-step solution

Step 1 of 7 Supply and also demand schedule of Ernie and also Bert have the right to be summarized as under the below table,

Step 2 the 7 from the over table we can see the the amount demanded equals to quantity supplied at a price that $4. Therefore, $4 is the industry clearing price or equilibrium price. In addition, the quantity demanded at this price is the equilibrium quantity. Thus, equilibrium price is $4 and also equilibrium quantity is two bottles.

Step 7 the 7 Thus, the total surplus will be amount of consumer and producer surpluses of all the three bottles.

Thus, the total surplus will be $6. Thus, the full surplus fall by $2.

The price of developing flat-screen TVs has fallen end the previous several decades. Let’sconsider some effects of this fact.

a. Attract a supply-and-demand diagram to present the effect of fallout’s production costs on the price andquantity that flat-screen TVs sold.

b. In her diagram, present what happens to customer surplus and also producer surplus.

c. Intend the it is provided of flat-screen TVs is really elastic. That benefits many from fall productioncosts—consumers or producer of these TVs?

Step-by-step solution

Step 1 of 7 A autumn in production costs of flat TV displays will rise the supply in turn making a change in the supply curve in the direction of its right as shown in the below diagram. S 1 is the initial supply curve, and due come decrease in expense of production supply increases developing S2. The brand-new equilibrium suggest is created at a lower level at E 2 than the previous suggest of equilibrium E 1. At this new level that equilibrium E 2 , the quantity rises from Q 1 to Q 2 and the price to reduce from ns 1 to ns 2.Step 2 of 7 demand – it is provided of level TVStep 3 the 7

Thus, fall production costs decreases the equilibrium price of TV’s and thus, increasesthe equilibrium quantity.

Step 4 the 7

b)Consumer Surplus:Initial customer surplus is offered by the area under demand curve and over the price ns 1 ;that is the area under M. Furthermore, final consumer surplus as result of decreased expense ofproduction is provided by the area under demand curve and above the price p 2 ; thatis (M+N+O+P).Thus, the customer surplus rises through (N+O+P).Consumer and also Producer surplus:

Step 5 of 7 Producer Surplus: likewise initial producer excess is offered by the area over the supply curve S 1 and also below the price ns 1 ; the is N+Q. However, because of a production cost decline, the area over the new supply curve S2 and also below the new price P2; that is, (Q + R + S) give the producer excess Thus, the producer surplus alters by the lot (R + S – N); in fact, the readjust in producer surplus might be optimistic or negative, it depends on the increase in amount versus decline in price, rise in quantity rises producer surplus, if the decline in the price reduces producer surplus.Step 6 the 7 total Surplus: Furthermore, together the customer surplus rises by N+O+P and producer excess rises by R + S – N, total surplus rise is calculated as presented below;

Thus, the complete surplus rises through (O+P +R + S).7. Action 7 of 7

c)If the supply of flat TV screens is very elastic, then the transition of the supply curve benefitsthe consumers.

Table 1

Price quantity demanded amount supplied

$2 4 1

$3 3 2

$4 3 3

$6 2 4

Step 3 that 6

As over table mirrors that industry for haircut is in equilibrium when price is $4 per hair cutas in ~ this price amount demanded is same to amount supplied.When industry is in equilibrium, that is effective as well. Since, quantity offered atequilibrium is 3 haircuts because of this for effectiveness 3 haircuts need to be given.Firm A, C, and also D should offer haircut together their expense is much less than the price while client 1,3 and 4 should have actually their hair cut as your willingness to salary is more than price charged.

Step 4 of 6 Calculating Producer surplus – Producer excess of for sure A –

Thus, producer surplus of certain A is $1.Producer surplus of for sure C –

Thus, producer surplus of for sure C is $0.Producer surplus of for sure D –

Thus, producer surplus of certain D is $2.

Thus, full producer surplus is $3.

Step 5 of 6 Calculating consumer Surplus – customer Surplus of buyer 1 –

Thus, customer surplus of the person who lives 1 is $3.Consumer surplus of buyer 3 –

Thus, consumer surplus of the person who lives 3 is $4.Consumer excess of the person who lives 4 –

Thus, consumer surplus of the person who lives 4 is $1.

Thus, complete producer excess is $8.6. Step 6 of 6Calculating total Surplus –

Thus, the maximum feasible total excess is $11.

One the the largest alters in the economy over the past several years is the technologicaladvances have diminished the cost of do computers.

a. Draw a supply-and-demand diagram to show what taken place to price, quantity, customer surplus, andproducer excess in the sector for computers.

b. Forty years ago, students used typewriters come prepare files for their classes; this particular day they usecomputers. Does that make computers and typewriters complements or substitutes? use a supply-and-demand chart to present what taken place to price, quantity, consumer surplus, and producer excess in themarket for typewriters. Need to typewriter producers have actually been happy or sad about the technologicaladvance in computers?

c. Are computers and also software complements or substitutes? draw a supply-and-demand diagram to showwhat occurred to price, quantity, consumer surplus, and also producer surplus in the market for software.Should software application producers have been happy or sad about the technological advance in computers?

Step 4 that 8

Initially, the sector for typewriters is in equilibrium at allude E with equilibrium pricebeing p per typewriters and also equilibrium amount being Q typewriters. Customer surplus isequal to area 1+2 and also producer surplus is equal to area 3+4+5.As students space using computer systems in place of typewriters, computers and also typewriters aresubstitutes.In instance substitute goods, increase in price the one leader to rise in amount demanded ofother and vice-versa.Price of computer has reduced (as presented in part (a)). Being substitutes, this fall in priceof computers will decrease the amount demanded of typewriters.This to decrease in amount demanded will change the demand curve for typewriters from D toD 1. Brand-new equilibrium is attained at suggest E 1 with new equilibrium price being p 1 percomputer and new equilibrium amount being Q 1 computers. Customer surplus is equal toarea 2+4 and also producer surplus is equal to area 5.5. Action 5 of 8Decrease in need for typewriters due to fall in the price of its instead of (computer) hasresulted in autumn in price the typewriters from p to p 1 , diminish in amount from Q to Q 1 , fallin both consumer surplus and also producer surplus.

As producer surplus of typewriter producers is decreasing due to technologicaladvancement in computer, they will be sad due to such advancement in technology.

Step 6 the 8

(c) Following number shows the market for software application –Figure 3

Step 7 of 8 Initially, the sector for software application is in equilibrium at allude E with equilibrium price being p per unit and also equilibrium quantity being Q units. Customer surplus is equal to area 2+ and producer surplus is equal to area 5. For operating a computer, software program is crucial component and therefore computer and software acts as complements. In case of complements, increase in price of one reduce the amount demanded of other and vice-versa. Gift complement, fall in price of computer system (as shows in component (a)) will increase the need for software. This rise in need for software program will change the demand curve for software rightwards from D come D 1. New equilibrium is attained at point E 1 with brand-new equilibrium price being p 1 every unit and new equilibrium amount being Q 1 every unit. Consumer surplus is equal to area 1+2 and also producer surplus is same to area 3+4+5. Rise in demand for software due to fall in the price of its match (computer) has actually resulted in increase in price of software application from ns to p 1 , increase in quantity from Q to Q 1 , increase in both consumer surplus and also producer surplus. As producer excess of software application producers is increasing due to technological advancement in computer, they will certainly be happy due to such development in technology.

Step 8 that 8 (d) Yes, the evaluation depicted in part (c) explain the provided statement in the sense that with fall in expense of computer, need for software has actually increased enabling the software program producers to not just sell at higher price but also a bigger quantity also resulting in boost in complete revenue and also producer excess describing the reason for their riches.

A girlfriend of yours is considering 2 cell phone company providers. Provider A charges $per month for the business regardless that the variety of phone call made. Provider B walk not have actually afixed service fee however instead fees $1 per minute because that calls. Your friend’s monthly need for

minutes of call is offered by the equation , wherein P is the price the a minute.

a. Through each provider, what is the expense to her friend of an extra minute on the phone?

Calculate the customer surplus acquired from provider A, as follows:

Step 5 the 6 calculate the customer surplus acquired from provider B, as follows:

Step 6 of 6 (e) The friend gets a greater consumer surplus from provider A. Therefore, Provider A is recommended.

The supply and also demand for broccoli are explained by the adhering to equations:

Q is in bushels, and P is in dollars every bushel.

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a. Graph the it is provided cure and the demand curve. What is the equilibrium price and also quantity?

b. Calculate customer surplus, producer surplus, and also total surplus at the equilibrium.

c. IF a dictator who hated broccoli to be to half the vegetable, that would be affected by each other the bigger burden-thebuyers or sellers that broccoli?

Step-by-step solution

Step 1 that 5 a) The need curve have the right to be attracted as below:

The demand curve for clinical procedure is presented as D1. If the price of each medicalprocedure is $100, the variety of medical actions is Q2.2. Step 2 that 5b)If the customer pays only $20 per procedure, the amount of actions will increase fromQ1 come Q2.If the expense to culture is $100 and also individuals have health insurance, the number ofprocedures will certainly maximize complete surplus due to the fact that there will be a rightward transition in the demandcurve native D1 to D, thereby raising consumer and also producer surplus.3. Step 3 the 5c)