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Effects of market shifts on the consumer surplus

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Choose one industry with which you are familiar. Draw a graph of this market in equilibrium. Give two examples for the industry of conditions which would change supply and two that would change demand. Explain and illustrate how each of these would affect equilibrium. Indicate the effect on equilibrium price and quantity and the effect on consumer surplus.

Industry selected: Electric utilities

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See the attached file for a diagram of a market in equilibrium showing the consumer surplus.

Factors that could shift the supply curve include an increase in energy costs and an improvement in technology.

If the cost of coal increases, electric utility firms' costs will also increase. This will decrease supply and shift the supply curve to the left. Equilibrium price will ...

Solution Summary

This solution gives examples of conditions that would shift the supply and demand curves for the electric utilities industry, and predicts the effects of those shifts on the equilibrium price, quantity and consumer surplus.

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Free Trade / Surplus

2. The world price of wine is below the price that would prevail in the United States in the absence of trade.

a. Assuming that American imports of wine are a small part of total world wine production, draw a graph for the U.S. market for wine under free trade. Identify consumer surplus, producer surplus, and total surplus in an appropriate table.

b. Now suppose that an unusual shift of the Gulf Stream leads to an unseasonably cold summer in Europe, destroying much of the grape harvest there. What effect does this shock have on the world price of wine? Using your graph and table from part (a), show the effect on consumer surplus, producer surplus, and total surplus in the United States. Who are the winners and losers? Is the United States as a whole better or worse off?

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