Microeconomics · free preview
Measuring a Market's Value
Total surplus is the sum of consumer and producer surplus, the competitive equilibrium maximizes it, and every departure from the equilibrium quantity destroys a triangle of value.
1. The two triangles
The two triangles
2. Why equilibrium quantity is special
Why equilibrium quantity is special
3. The wrong quantity loses a triangle
The wrong quantity loses a triangle
4. Efficiency is not fairness
Efficiency is not fairness
5. The areas
In a market with equilibrium price 24 and quantity 72, the demand curve intercepts the price axis at 60 and the supply curve starts at the origin. What are consumer and producer surplus?
6. Reading deadweight loss
A market's equilibrium quantity is 72, but only 60 units trade. The demand price at 60 is 27 and the supply price at 60 is 20. What is the deadweight loss?
7. A bigger triangle
A market's equilibrium quantity is 50 units, but only 30 trade. At quantity 30 the demand price is 44 dollars and the supply price is 20 dollars. Compute the deadweight loss in dollars and write the number.
8. The buyers' triangle
In a market with equilibrium price 24 and quantity 72, the demand curve hits the price axis at 60 and supply passes through the origin. What is consumer surplus?
9. What makes the equilibrium quantity special
Why does the competitive equilibrium quantity maximize total surplus in this market?
10. Deadweight of restriction
A market's equilibrium quantity is 50 units but only 40 trade. At quantity 40 the demand price is 48 dollars and the supply price is 16 dollars. Compute the deadweight loss in dollars, and write the number.
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