Consider a market with a perfectly elastic demand curve at p∗= 1,763 and a perfectly inelastic...

Consider a market with a perfectly elastic demand curve at p∗= 1,763 and a perfectly inelastic supply curve at q∗= 452. What is the Consumer Surplus? What is the Producer Surplus?

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Expert Solution

Consumer surplus = Consumer's willingness to pay - The market price

Producer surplus = The market price - Producer's willingness to accept the price

In case of a perfectly elastic demand curve , the price elasticity of demand is infinity. There will be no consumer surplus. Thus, in the given example,

Consumer surplus = $0

Producer surplus = p^* x q^* = 1,763 * 452 = $796,876

Rahul Sunny answered 1 year ago

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