More Welfare Economics Examples
(Chapter 7, Problems 3,4,5 in your text)
a.
b.
c.
Bottle
Oliver’s Value
Ben’s Cost
1
7
1
2
5
3
3
3
5
4
1
7
Derive Oliver’s demand schedule and graph his demand curve
If price is 4, how many would Oliver like to buy and how much consumer
surplus would he get from this purchase?
If price fell to 2, how much would quantity demanded and consumer
surplus change? Illustrate graphically.
Copyright © 2010 Cengage Learning
More Welfare Economics Examples
(Continued)
a. Derive Ben’s supply schedule and graph his supply curve.
b. If price is 4, how many would Ben like to sell and how much producer
surplus would he get from this sale?
c. If price fell to 2, how much would quantity supplied and producer surplus
change? Illustrate graphically .
d. If Ben and Oliver are the market, what is the equilibrium price?
e. What are consumer, producer and total surplus at the equilbrium price?
f. What would happen to consumer, producer and total surplus if Ben
produced and Oliver bought one fewer units? One more unit?
Copyright © 2010 Cengage Learning
More Welfare Economics Examples
(Based on Chapter 8, Question 11 in your text.)
Suppose that a market is described by the following supply and demand curves:
QS=2P
QD=300-P
a. Solve for the equilibrium price and quantity.
b. How will at tax T on buyers affect the equilibrium?
c. Calculate the revenue this tax will raise.
d. Calculate the deadweight loss.
Copyright © 2010 Cengage Learning