a. Show on a demand supply graph how consumer surplus and producer surplus is defined b....

a. Show on a demand supply graph how consumer surplus and producer surplus is defined

b. In general to evaluate welfare effects we need to consider the welfare of groups of individuals. What problem does consumer surplus pose in this regard ?

c. There are to firms in an economy facing a upward sloping supply curve in a perfectly competitive setting. Show graphically how you would find the total producer surplus in the economy.

Solutions

Expert Solution

Consumer Surplus is the gain made by consumers when they purchase an item at the competitive market price rather than the (highest) price that they would have been willing to pay for it.

Producer surplus is the gain made by the producers when they sell an item at the market price rather than the (lowest) price that they would also have accepted for it.

Rahul Sunny answered 1 year ago

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