Answered: Shade the area representing Rajiv's…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the market for apartments. The market price of each apartment is $375,000, and each buyer demands no more than one apartment.

Suppose that Rajiv is the only consumer in the apartment market. His willingness to pay for an apartment is $600,000. Based on Rajiv's willingness to pay, the following graph shows his demand curve for apartments.

Shade the area representing Rajiv's consumer surplus using the green rectangle (triangle symbols).

Part 2

Now, suppose another buyer, Simone, enters the market for apartments, and her willingness to pay is $450,000.

Based on Simone's and Rajiv's respective willingness to pay, plot the market demand curve on the following graph using the blue points (circle symbol). Next, shade Rajiv's consumer surplus using the green rectangle (triangle symbols), and shade Simone's consumer surplus using the purple rectangle (diamond symbols).

Note: Plot your points as a step function in the order in which you would like them connected. Line segments will connect the points automatically.

True or False: Keeping his maximum willingness to pay for an apartment in mind, Yakov will buy the apartment because it would be worth more to him than its market price of $375,000. ( see capture 2 for the graph )

Shade the area
representing Rajiv's consumer surplus using the green rectangle (triangle symbols).
Rajiv's Demand
600
525
Rajiv's Consumer Surplus
450
Market Price
375
300
225
150
75
0
0
4
QUANTITY (Apartments)
PRICE (Thousands of dollars)

800
525
Demand Curve
450
Market Price
375
Rajiv's Consumer Surplus
300
Simone's Consumer Surplus
225
150
75
0
1
0
2
3
4
QUANTITY (Apartments)
PRICE (Thousands of dollars)

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