Question

Buyer	WTP		Seller	SC
Abe	20		Vlad	24
Boris	40		Wang	18
Carla	60		Xilla	12
Deirdre	80		Ying	6
Ezra	100		Zenobia	0

1.The data above represent the willingness to pay (WTP) and seller cost (SC) data for a flu shot market.

Each potential buyer is willing to purchase one flu shot if the price is below their WTP or no flu shot if the price is above their WTP.

Each potential seller is willing to sell one flu shot if the price is above their SC or no flu shot if the price is below their SC.

A price of $22 will produce an equilibrium of quantity demanded = 4 = quantity supplied.

What is consumer surplus in this equilibrium?

Buyer	WTP		Seller	SC
Abe	20		Vlad	24
Boris	40		Wang	18
Carla	60		Xilla	12
Deirdre	80		Ying	6
Ezra	100		Zenobia	0

2.The data above represent the willingness to pay (WTP) and seller cost (SC) data for a flu shot market.

Each potential buyer is willing to purchase one flu shot if the price is below their WTP or no flu shot if the price is above their WTP.

Each potential seller is willing to sell one flu shot if the price is above their SC or no flu shot if the price is below their SC.

A price of $22 will produce an equilibrium of quantity demanded = 4 = quantity supplied.

What is producer surplus in this equilibrium?

Buyer	WTP		Seller	SC
Abe	20		Vlad	24
Boris	40		Wang	18
Carla	60		Xilla	12
Deirdre	80		Ying	6
Ezra	100		Zenobia	0

3.The data above represent the willingness to pay (WTP) and seller cost (SC) data for a flu shot market.

Each potential buyer is willing to purchase one flu shot if the price is below their WTP or no flu shot if the price is above their WTP.

Each potential seller is willing to sell one flu shot if the price is above their SC or no flu shot if the price is below their SC.

A price ceiling of $19 will make flu shots affordable to Abe without discouraging any of the existing 4 willing sellers. That's pretty much the best case for a price ceiling.

On average, what will producer surplus be now?

4. All 1400 haircuts get paid the $5 subsidy. 1000 of the 1400 haircuts would have happened anyway. But 400 of them wouldn't.The government decides that a pretty populace is a happy populace. It therefore decides to establish a $5 subsidy for suppliers of haircuts. The price of haircuts falls from $28 to $25. The quantity transacted of haircuts rises from 1000 to 1400.How much did the government spend per increased haircut?

5.

Buyer	WTP		Seller	SC
Abe	20		Vlad	24
Boris	40		Wang	18
Carla	60		Xilla	12
Deirdre	80		Ying	6
Ezra	100		Zenobia	0

Part of the decline in deadweight loss comes from the decline in producer surplus -- seller's economic welfare -- and we may not care about the economic welfare of sellers.

But if we are instituting price ceilings, we probably do care about the economic welfare of buyers.

The price ceiling changed consumer surplus by ___________ dollars. (Enter a positive number if the price ceiling increased consumer surplus, a negative number if it decreased consumer surplus.)

Answer 1

1.Consumer's surplus=willingness to pay of(Boris+Carla+Diedre+Ezra)

CS=40+60+80+100=280

2.Producer's surplus=selling price of (wang+xilla+ying+zenobia)

PS=18+12+6+0=36

3.PS would be the same because Vlad's selling price is $24 which is still higher than the price ceiling.So,he would not enter the market and the PS would remain unchanged.

4.Amount spent by the government=number of increased haircuts*subsidy provided.

Amount=400*5=$2000

5CS after price ceiling=initial CS+20 (Abe can also afford a haircut now)

Consumer's surplus has therefore changed by $20.