Transcript Chapter 7 - Mr. Zedan`s Classes

Chapter 7
Problems and Review
How much are you willing to pay for
these things and why?
 Can of Coke
 Pair of Louis Vuitton heels
 Tickets to the Super bowl
 A new shirt to wear to school
 Graph the consumer surplus of a market that has an equilibrium
price of $5 and an equilibrium quantity of 100.
 Graph the new surplus for when the price falls to $3.
Question 1
 Mr. Zedan loves hotdogs. He can buy as many hotdogs he
wishes at a price of $0.70 per dog. On a particular day, he is
willing to pay $1.50 for the first dog, $1.10 for the second
dog, $0.65 for the third dog, and $0.50 for the fourth dog.
Assume Mr. Wicker is rational in deciding how many dogs to
buy. How many hotdogs will he buy? What is his consumer
surplus?
 He will buy 2 hotdogs.
 His total consumer surplus is $1.20
 80 cents for the first one, 40 cents on the second
 He would not buy the last dog because it cost more than he is
willing to pay.
Question 2
 If the price of oranges decreases, what happens to consumer
surplus in the market for orange juice? Why?
 The increase in the
supply of oranges
would shift the supply
of orange juice to the
right, thus increasing
consumer surplus.
Question 3
 Graph the consumer surplus of a market that has an
equilibrium price of $5 and an equilibrium quantity of 100.
Price
A
CS
C
B
$5
PS
D
100
Q
Question 4
 What would be the be the designation of the area of
consumer and producer surplus?
Price
$10
A
 Consumer surplus:
Triangle A,B,C
CS
C
B
$5
 Producer Surplus:
Triangle CBD
PS
D
100
Q
Question 5
 What is the value of consumer and producer surplus? What is
total surplus?
 They are each the same: $250
 (5 * $100)/2 = $500/2 = $250
 This is just the area of he triangle 
 So $250 + $250 = $500
Question 6
 What would happen to consumer surplus when the price is
changed to $7 and quantity to 70? Producer surplus? Total
surplus? Is $7 efficient? Equal?
Consumer surplus: $105
$10
Loss: $60
Producer surplus: $280 + $105 = $385
$7
CS
Not Equal
Not Efficient
$5
PS
$3
D
70
100
Q

Answer the following questions based on the graph that
represents J.R.'s demand for ribs per week of ribs at
Judy's rib shack.
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a.
Question 7
b.
 c.
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d.
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e.
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f.
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g.
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h.
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i.
At the equilibrium price, how many ribs would
J.R. be willing to purchase?
How much is J.R. willing to pay for 20 ribs?
What is the magnitude of J.R.'s consumer
surplus at the equilibrium price?
At the equilibrium price, how many ribs would
Judy be willing to sell?
How high must the price of ribs be for Judy to
supply 20 ribs to the market?
At the equilibrium price, what is the
magnitude of total surplus in the market?
If the price of ribs rose to $10, what would
happen to J.R.'s consumer surplus?
If the price of ribs fell to $5, what would
happen to Judy's producer surplus?
Explain why the graph that is shown verifies
the fact that the market equilibrium (quantity)
maximizes the sum of producer and consumer
surplus.
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a.
b.
c.
d.
e.
f.
g.
h.
i.
40
$10.00
$80.00.
40
$5
$200
It would fall from $80 to only $20.
It would fall from $120 to only $30.
At quantities less than the equilibrium quantity, the marginal value
to buyers exceeds the marginal cost to sellers. Increasing the
quantity in this region raises total surplus until equilibrium
quantity is reached. At quantities greater than the equilibrium
quantity, the marginal cost to sellers exceeds the marginal value to
buyers and total surplus falls.
Question 8
 See question 9 in your textbook, page 156 