Economics
Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
Question
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Chapter 4, Problem 1BCQ
To determine

Using a diagram explain the consumer and producer surplus between Boss and fans

Concept Introduction:

Demand Curve: The curve shows how the quantity demanded changes due to changes in the price. It is a negatively sloped curve.

Supply Curve: The curve shows how the quantity supplied changes due to changes in the price. It is a positively sloped curve.

Consumer Surplus: It is a difference between the amount that a consumer wants to pay and the real amount which he pays for goods and services.

Producer Surplus: It is the difference between the amount that a producer wants to receive and the real amount which he receives for goods and services.

Expert Solution & Answer
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Explanation of Solution

Economics, Chapter 4, Problem 1BCQ

Fig 1

  • In the above table, x-axis shows quantity of tickets sold and y-axis shows the price of ticket.
  • The market price of ticket is $284, however the boss sold it for only $75.
  • The reduction in the price has led to loss in the producer surplus and gain in the consumer surplus. When price is $284, the quantity sold is Q1,but when it decreased to $75, the quantity of ticket sold increased to Q2.
  • Lower price has made consumers better off, but there was a loss in producer surplus shown by the shaded area. It was found that the boss lost almost $4 million.

Conclusion:

Thus, there was a loss in producer surplus due to fall in price.

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