Purchase Solution

Consumer Surplus, Producer Surplus, Consumer Deadweight Loss, and Producer Deadweight Loss

Not what you're looking for?

Ask Custom Question

Draw out multiple supply/demand graphs and identify (in color) where you have: 1) Consumer Surplus, 2) Producer Surplus, 3) Consumer Deadweight Loss, and 4) Producer Deadweight Loss.

Purchase this Solution

Solution Summary

Consumer Surplus, Producer Surplus, Consumer Deadweight Loss, and Producer Deadweight Loss are encompassed.

Solution Preview

Please see the attached file.

Draw out multiple supply/demand graphs and identify (in color) where you have: 1) Consumer Surplus, 2) Producer Surplus, 3) Consumer Deadweight Loss, and 4) Producer Deadweight Loss.

I. What is consumer surplus?

When you buy anything, the price you are willing to pay is equal to the utility (''satisfaction'') you gain from consuming the last unit of it. Sellers in the market do not know if this is the first, second or last unit you are willing to buy. Sellers meet many consumers every day, and they will try to sell as many units as they can; hence they will lower their prices to a level where they make a ''normal'' profit per unit.
The consumption of the second unit will give you a little less satisfaction (one reason why the demand curve is downward sloping). Each additional item yields a little less satisfaction than the preceding one, so the utility of each item steadily decreases. Since the supplier does not know how many units you have already consumed, they will offer the goods at the market price of Po below. Thus, you are actually gaining more ''utility'' from the consumption of the first and second units than you are actually paying for. (because for any point left of Qo, your marginal benefit measured by the demand curve is higher than Po, the price that you actually pay for that unit. The total utility you gain is the entire green area (summation of the difference between the marginal benefit and the ...

Purchase this Solution


Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.