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Economics 101 – Wissink – F03
Introductory Microeconomics FINAL
READ THIS FIRST.
NAME: fill in your name LAST NAME, FIRST NAME.
IDENTIFICATION NUMBER: In spaces A - F: fill in your 6-digit CU ID
number
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
USE THE ANSWER SHEET PROVIDED.

NO BOOKS, NOTES, COMPUTERS OR CELL PHONES ARE
ALLOWED.

ONLY SIMPLE NON-GRAPHING CALCULATORS ARE
PERMITTED.

USE A NUMBER 2 PENCIL.

THERE ARE 40 QUESTIONS – DO THEM ALL.

ALL QUESTIONS HAVE THE SAME WEIGHT (2.5 POINTS).

NEITHER THE INSTRUCTOR NOR THE PROCTORS WILL
ANSWER ANY QUESTIONS DURING THE EXAM.

CHOOSE THE BEST POSSIBLE ANSWER FOR EACH QUESTION.

THERE IS A 2 HOUR TIME LIMIT.
Glossary of some abbreviations:
P: price
Q: quantity
q: firm’s quantity
TR: total revenue
MR: marginal revenue
SR: short run
LR: long run
TC: total cost
ATC: average total cost
VC: variable cost
AVC: average variable cost
FC: fixed cost
AFC: average fixed cost
MC: marginal cost
SRATC: short run average total cost
area of a triangle is = .5(base)(height)
1. In a Cournot-Nash duopoly game, which of the following is false?
A. The two firms earn lower profits than a single monopolist.
B. The two firms earn higher profits than in the competitive equilibrium.
C. The Nash equilibrium is always more profitable for the two firms, taken
together, than the cooperative outcome (collusion).
D. The market price is less than the price charged by a single monopolist but
more than the competitive price.
E. Deadweight loss is less than for a monopoly in the same market, but still
positive.
2. The difference between production possibilities curves with and without
trade represents the
A. terms of trade.
B. gains from trade.
C. country's comparative advantage.
D. deadweight loss to a country.
E. country's absolute advantage.
1992 US Income Distribution
Cumulative Percent of Income
100%
90%
80%
70%
Income
Distribution A
60%
50%
Income
Distribution B
40%
30%
Equality
20%
10%
0%
0%
20%
40%
60%
80%
100%
Cumulative Percent of Households
3. The figure above shows two income distributions for the United States in
1992. Which of the following statements is true?
A. Income distribution A is more equal than income distribution B.
B. Income distribution B reflects the net effect of US tax and transfer programs
on income distribution A, the pretax and transfer distribution of income.
C. Income distribution A reflects the net effect of US tax and transfer programs
on income distribution B, the pretax and transfer distribution of income.
D. The fact that income distribution A never crosses income distribution B
means that we cannot say which distribution is more equal.
4. Suppose that the price of a bag of tortilla chips is $3, and the price of a
jar of salsa is $2. Holding the consumer’s spending on chips and salsa
constant, how many bags of chips must the consumer forego to buy an
additional 6 jars of salsa?
A. 0 bags
B. 2 bags
C. 3 bags
D. 4 bags
E. 6 bags
Regulated Market
Price Quantity
Quantity
($/q) supplied demanded
1
0
2.5
2
2
2.0
3
4
1.0
4
6
0.5
5
8
0.0
5. Consider the regulated market shown in the table above. The
government has imposed a mandatory price floor of $4/q. The result is
A. a surplus of 3 units.
B. a shortage of 5.5 units.
C. a surplus of 5.5 units.
D. a shortage of 3 units.
E. equilibrium, no shortage or surplus exists.
6. The reason both prisoners confess in the prisoner's dilemma game is that
A. confession is the best option given the possible choices of the other prisoner.
B. criminals are never inclined to cooperate with each other.
C. the option of both confessing yields the most desirable result for the prisoners.
D. they each serve the least time if they confess.
E. decisions in real life are based on society's best interests.
7. The demand curve for pasta marinara at the Ivy Room in Willard
Straight Hall is given by the formula: Q = 42 – 10P. Pasta is measured in
400g servings, and its price is in $/serving. It is well known that at the
market equilibrium, the price elasticity of demand for pasta marinara is
-0.4. Find the quantity demanded of pasta marinara if the price is $4.00.
A. 2 servings
B. 8 servings
C. 10 servings
D. 3 servings
E. Answer cannot be determined from given information.
8. Economists describe markets using the price elasticities of supply and
demand rather than the slopes of the supply and demand curves because:
A. elasticity is easier to compute.
B. the slope tells us about relative changes whereas the elasticity tells us about
absolute changes.
C. the elasticity, which does not depend upon the units of measurement, can be
compared across markets whereas the slopes, which depend upon the units of
measurement, cannot be directly compared.
D. the slope is more useful for straight line demand and supply curves while the
elasticity is more useful for demand and supply curves that are linear in the
logarithms.
E. it’s always more fun to study elasticity formulas.
9. Marginal cost is equal to average total cost when
A. average total cost is at a minimum.
B. average total cost is at a maximum.
C. average total cost is negative.
D. marginal cost is at a minimum.
E. marginal cost is at a maximum.
10. Market demand
A. does not depend on individual demand.
B. goes down when individual demand goes up.
C. is the sum of the quantities demanded by each individual in the economy at
each price.
D. slopes upward.
E. is the sum of the quantities supplied by each producer in the economy at each
price.
11. Which one of the following statements is true?
A. Markets that are Pareto efficient maximize net social surplus.
B. Markets that are Pareto efficient will always allocate the gains from trade
equally to buyers and sellers.
C. Markets that are Pareto efficient are also necessarily equitable.
D. Markets that are Pareto efficient maximize the firm’s profit.
E. All of the above statements are true.
12. A payroll tax, like the Social Security payroll tax, on an employee’s
wage and salary earnings will
A. decrease employment and increase the after-tax wage rate received by
workers.
B. decrease both employment and the after-tax wage rate received by workers.
C. increase both employment and the after-tax wage rate received by workers.
D. decrease employment, however, the after-tax wage rate may increase,
decrease or remain unchanged.
E. decrease the after-tax wage rate, however, employment may increase,
decrease or remain unchanged
13. Hampton is a monopolist in the market for Finery. Finery is, of course,
a cool type of shirt. The market demand curve for Finery is P=$1000-(Q/4).
Hampton’s only cost of producing Finery is the $200 material cost for each
shirt. Hampton’s profit maximizing price, quantity and profit level are
A. P=$350, Q=2800, profit=$420,000.
B. P=$300, Q=2800, profit=$280,000.
C. P=$400, Q=2400, profit=$480,000.
D. P=$200, Q=1600, profit=$700,000.
E. P=$600, Q=1600, proft=$640,000.
14. In the previous question, if Hampton could perfectly price discriminate,
his profit level would be
A. $2,560,000.
B. $1,800,000.
C. $2,260,000.
D. $1,280,000.
E. $3,000,000.
15. John is a well-behaved utility maximizer. He spends all his income and
consumes 35 apples a week and 14 loaves of bread. Apples cost $1 each and
bread costs $2 per loaf. John's marginal utility from his 35 th apple
A. equals his marginal utility from his 14th loaf of bread.
B. is twice his marginal utility from his 14th loaf of bread.
C. is half his marginal utility from his 14th loaf of bread.
D. is such that his total utility from apples equals his total utility from bread.
E. None of the above.
16. China and Korea both produce wheat and fabric with labor. The labor
input is measured in person-hours, wheat is measured in pounds and fabric
is measured in yards. The table below shows labor requirements to produce
a unit of wheat and fabric in each country. (It is assumed that the labor
requirements per unit of output in production remain the same irrespective
of the quantity of the two goods produced.) Each country has 150 hours of
labor available, which can be allocated between the two activities. What is
the opportunity cost of producing one additional unit of wheat in terms of
fabric in China?
A. 25/15 yds.
B. 15/25 yds.
C. 15/30 yds.
D. 25/10 yds.
E. None of the above.
1 lb. of
Wheat
1 yd. of
Fabric
China
15 hours
25 hours
Korea
30 hours
10 hours
17. In the previous question, which country has the comparative advantage
in the production of fabric?
A. Both Korea and China.
B. Neither Korea nor China.
C. China.
D. Korea.
E. Not enough information to determine.
18. Megan, Stanley and Elicia are stranded on an isolated mountain waiting
for help to arrive. They spend their waking hours recycling food and
water. Their production capabilities are given in the table below in terms
of the maximum rates of food or water each can produce. Assuming that
the three of them cooperate in production, what is the cost of producing the
57th liter of water?
Max Food
(kg)
Max Water
(liter)
Megan
1
30
Stanley
3
30
Elicia
3
60
A. 10 kg/liter.
B. 1/30 kg/liter.
C. 1/10 kg/liter.
D. 20 kg/liter.
E. 1/20 kg/liter.
19. Which of following characterize what economists refer to as a pure
public good?
I. Public or government provision.
II. Non-rivalry.
III. Non-excludability.
A. I and II.
B. I and III.
C. II and III.
D. I, II and III.
E. I only.
20. Assume Octavia is a nicely behaved utility maximizing consumer who
spends all her income on beef and cheese only. Assume both goods are
normal goods. When the price of cheese decreases, Octavia will
A. consume less beef and more cheese.
B. consume less beef, however, her cheese consumption may increase, decrease
or remain unchanged.
C. consume more beef, however, her cheese consumption may increase, decrease
or remain unchanged.
D. consume more cheese, however, her beef consumption may increase, decrease
or remain unchanged.
E. consume more beef and more cheese.
21. The difference between the maximum amount of money consumers
would have been willing to pay for Q units of a good in the market and the
amount they actually paid for the Q units is referred to as
A. marginal benefit.
B. marginal cost.
C. consumers’ surplus.
D. producers’ surplus.
E. deadweight loss.
22. Which one of the following conditions is true for a long-run equilibrium
in a monopolistically competitive market?
A. Consumers’ surplus equals producers’ surplus.
B. Equilibrium price equals social marginal benefit.
C. Equilibrium price equals social marginal cost.
D. Net social surplus is maximized.
E. The firm is productively efficient.
23. In the Cournot-Nash equilibrium for a duopoly, which of the following
statements is false?
A. Each duopolist produces less than a simple monopolist would produce in the
same market.
B. The sum of the economic profit of each duopolist is less than the economic
profit of a simple monopolist in the same market
C. The deadweight loss is greater than the deadweight loss from a simple
monopolist operating in the same market.
D. The market price is greater than the competitive price.
E. If the two duopolist have the same cost structure, they will be better off
(higher profits for each) if they collude and divide the profit equally.
24. When income increases while the prices of all goods remain unchanged,
A consumption of inferior goods increases.
B. the slope of the budget line increases.
C. the slope of the budget line decreases.
D. the budget line shifts outward with a steeper budget line.
E. the budget line shifts outward with the same slope.
25. If a rise in the price of good X reduces the quantity of the good Y
demanded, then
A. the cross price elasticity of demand between good X and good Y is negative.
B. the cross price elasticity of demand between good X and good y is positive.
C. good X is an inferior good.
D. good X is a normal good.
E. good Y is an inferior good.
26. A new growth hormone is discovered to increases the milk output of
dairy cows and consumers know the hormone will decrease the purity of
milk. Economists (good ones, that is) predict that
A. the price of milk would rise and the quantity would fall.
B. the price of milk would fall but the quantity could rise or fall or remain the
same.
C. the price of milk could rise or fall but the quantity would fall.
D. the price of milk would fall and the quantity would rise.
E. the facts are insufficient to permit an answer.
27. You just won a free roundtrip ticket to LA and the ticket expires one
year from now. You want to use it today and the airfare is $500 today.
You also can sell it to anyone for a price of $450. If you don’t plan any
other trips in this year besides today’s trip, what is the opportunity cost of
using this free ticket today?
A. zero, the ticket is free.
B. $500.
C. $450.
D. $50.
E. incalculable because the ticket was a free ticket.
Re s id e n t
Aa ron
Bra n t
Cyn th ia
Da m on
E va
Ma rg in a l
Be n e fit
900
700
300
50
1000
28. The five residents of a small community in Ithaca are considering
constructing a public pool that costs $2,000 to build and is big enough to
accommodate all of them without congestion. Their marginal benefits from
this pool are shown in the table immediately above. If they decide to let a
single price monopolist build it, then which of the following statements are
true?
I. The monopolist will charge $700 per resident to maximize his profit.
II. The pool will be built.
III. The outcome is Pareto Efficient.
A. I and II.
B. I and III.
C. II and III.
D. II only.
E. I, II and III.
29. If a simple profit maximizing monopolist produces where his marginal
cost equals his marginal revenue, then
A. his price should also equal his marginal cost.
B. his economic profit must be zero.
C. economic profit must be positive.
D. his price should also equal his marginal revenue.
E. his economic profit is maximized.
Voter
Marginal
Benefit
Meredith
1000
Luca
350
Kats
650
Ahmed
1200
Kim
500
30. The citizens of Ithaca are considering constructing a train station that
costs $3,000 to build and is big enough to accommodate all of them without
congestion. Their marginal benefits from this station are shown in the table
above. Which one of the following statements is true?
A. A plan to build the station, granting all citizens access and taxing all citizens
$600 each, would not pass a majority vote.
B. The voters of Ithaca would also approve a plan to build the station, tax each
citizen $400, and charge an access fee of $300.
C. A private monopolist, restricted to charging a single price would conclude
that the best access fee is $1200 but the project is not worth doing.
D. A price discriminating monopolist would build the station, charge a $500
access fee, and just break-even.
E. A private monopolist, restricted to charging a single price would conclude
that the best access fee is $500 but the project is not worth doing.
31. United Airlines and TWA are players in a game in which each faces a
choice between raising its ad spending or leaving its ad spending the same.
The profit payoffs for the four combinations of strategies are as shown in
the payoff matrix below. If both United and TWA are rational profit
maximizers, what strategy will each follow?
Raise ad
spending
TWA
Leave ad spending
the same
Raise ad
$3000 for United
spending
$3000 for TWA
United
Leave ad $1000 for United
spending $5000 for TWA
the same
$5000 for United
$1000 for TWA
$6000 for United
$4000 for TWA
A. Both will raise ad spending.
B. Both will leave ad spending the same.
C. TWA will raise spending and United will leave spending the same.
D. United will raise spending and TWA will leave spending the same.
E. This game has no Nash equilibrium.
32. A single-price profit-maximizing monopolist with a continuous linear
demand curve has positive marginal costs at all levels of production above
Q = 0. Which one of the following statements is false in the short run?
A. At the chosen level of output, an increase in the price of the good will
necessarily reduce total revenue.
B. At the chosen level of output, demand for the good is price elastic.
C. At the chosen level of output some potential gains from trade are not realized.
D. At the chosen level of output, economic profit is necessarily positive.
E. At the chosen level of output, the monopolist is not maximizing total revenue.
33. Workers in a Midwest state can work in a factory for $15,000 per year
or rent a 100-acre farm and grow corn, self farming. Farming is perfectly
competitive. Normal farmland will produce 200 bushels of corn per acre
per year. Equipment costs for a 100-acre parcel are $5000 per year.
Workers like farming and factory work equally well. If corn sells for $2 per
bushel in the corn market, what will be the equilibrium rent for 100 acres of
normal farmland?
A. $5,000 per year.
B. $10,000 per year.
C. $15,000 per year.
D. $20,000 per year.
E. None of the above.
$/lesson
24
MC
18
16
12
8
6
D
6 8
12
Lessons per week
24
34. Rebecca is a single-price, profit-maximizing monopolist in the sale of
singing lessons. If her demand and marginal cost curves are as shown, how
much will she charge for each lesson and how many lessons will she sell
each week?
A. $6 per lesson, 6 lessons per week.
B. $8 per lesson, 8 lessons per week.
C. $12 per lesson, 12 lessons per week.
D. $16 per lesson, 8 lessons per week.
E. $18 per lesson, 6 lessons per week.
35. Using the information from the previous question, in all, how much
consumer surplus do buyers receive from their purchase of lessons at the
monopoly price?
A. $8 per week.
B. $16 per week.
C. $32 per week.
D. $72 per week.
E. None of the above.
36. Using the information from the previous question, by how much does
total economic surplus fall short of the maximum achievable surplus in this
market?
A. $8 per week.
B. $16 per week.
C. $32 per week.
D. $56 per week.
E. None of the above.
Number of
pumpkins
0
1
2
3
4
5
6
$Total Costs
5
6
$Marginal
Cost
1
3
5
7
30
41
37. The table above shows part of the total cost and marginal cost for
Robinson to produce pumpkins in a small patch of land. Some of the data
are missing, but you can fill it in and figure out what you need. If the price
of pumpkins are $6 each in the perfectly competitive pumpkin market and
Robinson’s choice of pumpkin production is discrete, how many pumpkins
should Robinson produce and what is his profit and producer surplus?
A. He should produce 3 pumpkins, earns $4 of profit, and $9 of producer
surplus.
B. He should produce 1 pumpkin, earns $0 of profit and $6 of producer surplus.
C. He should produce 4 pumpkins, earns $3 of profit and $9 of producer surplus.
D. He should produce 2 pumpkins, earns $8 of profit and $8 of producer surplus.
E. He should produce2 pumpkins, earns $3 of profit and $8 of producer surplus.
38. At its current level of operation, Christine's Cookies, Inc., faces average
total costs of $8 and a price of $6 for every pound of cookies she produces in
a perfectly competitive cookie market. Which of the following is LEAST
likely to occur?
A. Christine will leave the industry.
B. Other firms leave the industry and the equilibrium price rises to $8, allowing
Christine to continue production.
C. Market supply will decrease.
D. Christine will expand output to increase her profits.
E. All are equally likely to occur.
39. For a normal good, the income effect implies a _______ relationship
between a good’s own price and quantity demanded and the substitution
effect implies a _______ relationship between a good’s own price and
quantity demanded.
A. negative; positive.
B. negative; negative.
C. positive; positive.
D. positive; negative.
E. No relationship.
Two Buyer/Seller Double Oral Auction
Buyer A's Buyer B's Seller Z's Seller Y's
Marginal Marginal Marginal Marginal
Quantity
Benefit
Benefit
Cost
Cost
1
21
14
6
3
2
15
12
8
7
3
13
11
9
17
4
9
6
10
19
5
1
2
18
25
40. The table above shows the marginal benefit and marginal cost
information for a two buyer / two seller double oral auction. In the
competitive equilibrium, which of the following statement is false?
A.
B.
C.
D.
E.
Buyer A will buy 3 units of goods.
6 units are bought and sold in the market.
The total surplus is $43.
Seller Z sells more units of goods than Seller Y does.
Seller Z sells 3 units of goods.
Economics 101
Introductory Microeconomics Final Exam – FALL 2003
Answers
1
C. The cooperative outcome (collusion) is identical to the monopoly outcome--higher price and higher total profits than in the Cournot-Nash
duopoly outcome. The cooperative outcome is not an equilibrium of this game because under the rules of the Cournot-Nash formulation, the
firms must announce their outputs at the same time and cannot make side-payments to each other, as is required by the cooperative (collusive)
outcome.
2
B. This is one of the definitions of gains from trade.
3
B. The net effect of tax and transfer programs in the U.S. is to make the income distribution more equal, which is what Lorenz curve B shows,
as compared to the Lorenz curve for distribution A.
4
D. Salsa = Income -($3/$2) Chips is the budget constraint. To get 6 more jars of salsa, you must sacrifice 4 bags of chips. 4 bags of chips x
($3/$2) = 6 jars of salsa.
5
C. At $4/q, quantity supplied exceeds the quantity demanded by 5.5 units. The market faces a surplus of 5.5 units.
Price
($/q)
1
2
3
4
5
Regulated Market Answer
Quantity
Quantity Surplus (+) or
supplied demanded
Shortage (-)
0
2.5
-2.5
2
2.0
0.0
4
1.0
3.0
6
0.5
5.5
8
0.0
8.0
6
A. In a prisoner’s dilemma, the prisoners get the best outcome if neither confesses. However, if one confesses and the other doesn’t, the one
who doesn’t confess gets a huge penalty. If both confess, they both get a (relatively) small penalty. Confession is the Nash noncooperative
equilibrium.
7
A. To find the quantity demanded at a price of $4.00, substitute $4.00 into the price for the equation Q = 42 – 10P and solve. Therefore, Q =
42 – 10(4) = 2.
8
C. The unit-free character of elasticities means that the description of demand as “price elastic” in one market and “price inelastic” in another
does not depend upon the method we use to measure price and quantity.
9
A. When marginal cost is below average cost, average cost is falling; when marginal cost is above average cost, average cost is rising. They
are only equal at the minimum.
10
C. This is the definition.
11 A. This is a definition of Pareto efficiency. Refer to Lecture notes no. 16 where Pareto efficiency is defined.
12
B. Employment must fall (movement along the demand curve at the higher tax-inclusive price of labor to the employer) and after tax wages
must fall (movement along the supply curve at the lower after-tax wage rate received by the worker).
13
E. Given the demand equation, MR=$1000-(Q/2). MC=$200. Setting MR=MC and solving for Q, we get Q=1600. To get the market price,
plug this Q into the demand equation. We get P=$1000-(1600/4)=$600. Profit of the monopolist is ($600-$200)*1600=$640,000.
14
D. If he can perfectly price discriminate, then he'll be able to charge up to the maximum amount that people are willing to pay. This is the
whole area below the demand curve. Subtracting off his marginal costs, which is 200, we get a triangular area with height of 800 and base of
3200. Profit is then the area of the triangle, which is .5*(800*3200)=$1,280,000.
15
C. It’s the bang/buck condition again. Need the ratio of prices to equal the ratio of marginal utilities.
16
B. Comes from definition of opportunity cost.
17
D. Korea has the comparative advantage in fabric. Its opportunity cost to make a unit of fabric is 10/30 lbs. of wheat whereas in China is costs
25/15 = 5/3 lbs of wheat to make a yard of fabric.
18
E. Megan’s opportunity cost is 1/30kg; Stanley’s is 3/30kg; Elicia’s is 3/60=1/20kg. So Megan should specialize in water giving the group 30
liters, then Elicia should start producing until they reach a total of 57 liters. The group would be facing Elicia’s opportunity cost which is
1/20kg.
19
C. The conditions for a pure public good are nonexcludability and nonrivalry. Nothing in the definition requires pure public goods to be
publicly provided.
20
D. Octavia will consume more cheese. When price of cheese decreases, there are two effects. From the substitution effect, Octavia will
consume more cheese and less beef. From the income effect, she will consume more beef and cheese. Hence combining these two effects
together, cheese consumption will increase and beef consumption may increase decrease or remain unchanged.
21
C. Follows from the definition of consumers surplus.
22
B. The long run equilibrium in a monopolistically competitive environment is not productively efficient and does not maximize net social
surplus (since P>MC). Also there is no reason why consumers surplus should equal producers surplus. Only B is true. Price is always a
reflection of social marginal benefit, as long as there are no externalities in consumption.
23
C. In total, the two duopolists produce more than the monopolist operating in the same market would produce but less than the competitive
quantity, so the deadweight loss from the Cournot-Nash duopoly is less than a monopolist operating in the same market.
24
E. If prices remain unchanged, the slope of the budget line remains the same. More income will push the budget line out parallel to itself.
25
A. By the formula and definition of cross price elasticity, the cross price elasticity between good X and good Y is negative.
26
B. Demand for milk falls (shifts left), supply of milk rises (shifts right). So, the equilibrium price definitely falls, but the quantity can go either
way.
27
C. Although the ticket is free, when you use it today, you give up the chance to sell it to someone for a price $450. Hence $450 is the
opportunity cost of using it today.
28
P
1000
900
700
300
50
Q
1
2
3
4
5
TR
1000
1800
2100
1200
250
28
A. See table shown above. A single price monopolist can maximize his total revenue by charging $700/pass and sell three passes to residents.
He gets $2,100 of total revenue, which is greater than the cost of building it. Hence a single price monopolist will build it. However, it is not
Pareto Efficient because Damon and Cynthia cannot use the pool.
29
E. Profit maximization occurs when marginal revenue equals marginal cost.
30
E.
31
A.
32
D.
33
D.
34
D. The optimal quantity for a monopolist to produce it that at which the MR=MC. In this case, that is 8 lessons per week. The optimal price,
$16 per lesson, is the price on the demand curve if the quantity is 8.
35
C. Consumer Surplus is the area below the demand curve but above P=16. Thus CS = 8*8/2=32.
36
B. The area of the dead-weight loss triangle is (.5)(8)(4) = $16.
37
A. See the table shown below. The profit is maximized at 3 pumpkins and gets $4 (=total revenue – total cost =6*3 – 14) profit. The producer
surplus is $9, $5 from the first pumpkin, $3 from second pumpkin and $1 from third pumpkin.
Number of
pumpkin
0
1
2
3
4
5
6
Total Costs
(dollars)
5
6
9
14
21
30
41
.
Marginal
Cost
Price
Producer
Surplus
1
6
3
6
5
6
7
9
11
Total Producer Surplus
5
3
1
9
D.
39
B.
40
E. See the graph and table shown below. In a competitive equilibrium, 6 units of goods are traded at the price between $10/unit and $11/unit.
A and B both buy 3 units, Z sells 4 unit and Y sells 2 units.
Price
38
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
0
2
4
6
8
10
Quantity
Demand
Demand points
Supply
Supply Points
New Supply
New Supply Points
12
Equilibrium price =10.5
Buyer A's Buyer B's Seller Z's Seller Y's
Quantity Net Benefit Net Benefit Net Benefit Net Benefit
1
10.5
3.5
4.5
7.5
2
4.5
1.5
2.5
3.5
3
2.5
0.5
1.5
4
0.5
5
Surplus
17.5
5.5
9
11
Consumers Surplus
23
Producers Surplus
20
Government Revenue
0
Total Surplus
43
Equilibrium price =12.5