EBK MICROECONOMICS
2nd Edition
ISBN: 8220103679701
Author: List
Publisher: YUZU
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Question
Chapter 7, Problem 1Q
To determine
The effect of change in the elasticity of demand on social surplus.
Expert Solution & Answer
Explanation of Solution
The Elasticity of demand states the sensitivity of change in quantity demanded due to a change in price.
Social surplus is the sum total of both
In part (a) of the above diagram, DD is the demand and elastic demand curve, SS is the supply curve, and the
So, if the elasticity of demand is higher, consumer surplus will be lower as what a consumer is willing to pay becomes equal to what they actually pay.
Thus, the social surplus will also be lower as it consists of consumer surplus.
Similarly,
DD is the demand curve, SS is the elastic supply curve and the equilibrium price is where DD and SS intersect. Producer surplus is calculated between the price and above the supply curve, which means the higher the elasticity of supply, the lower is the producer surplus which will decrease social surplus. As the elasticity of supply increases, producer surplus also increases as shown in part ( b ) of the diagram, which will increase social surplus.
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Students have asked these similar questions
Let D(x)=(x-5)^2 be the price that consumers are willing to pay for x items and S(x)=x^2 +2x+1 be the price, in dollars, that producers are willing to accept for x units of the item. Assume x (less than equal to) 5.
a. find the equilibrium point
b. find the consumer surplus at the equilibrium point. sketch a graph to show what this value is represented by on the supple/demand curved
c. Find the producer surplus at the equilibrium point. Label on the graph above where the producer surplus is depicted.
Refer to the figure below.
What is the consumer surplus generated at a price of $150 per game console?
Instructions: Use the tool provided “CS” to illustrate this area on the graph.
Consumer surplus: $ ____
What is the producer surplus generated at a price of $150 per game console?
Instructions: Use the tool provided “PS” to illustrate this area on the graph.
Producer surplus: $ ____
e. What is total economic surplus at a price of $150 per game console?
Economic surplus: $ _____
f. What is the economic surplus generated if the market were in equilibrium?
Instructions: Use the tool provided “ESeq” to illustrate this area on the graph.
Economic surplus in equilibrium: $ ______
On a graph, consumer surplus is represented by the area
a.
between the demand and supply curves.
b.
below the demand curve and above price.
c.
below the price and above the supply curve.
d.
below the demand curve and to the right of equilibrium price.
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