Suppose the weekly demand and supply curves for used DVDs in Lincoln, Nebraska,

Question

Suppose the weekly demand and supply curves for used DVDs in Lincoln, Nebraska, are as shown in the diagram:

Use the following values for the graph above:

Calculate the following at the equilibrium price of $17.50.

a. The weekly consumer surplus at the market equilibrium price.

Instruction: Enter your response rounded to two decimal places.

$  per week.

b. The weekly producer surplus at the market equilibrium price.

Instruction: Enter your response rounded to two decimal places.

$  per week.

c. The maximum weekly amount that producers and consumers in Lincoln would be willing to pay to be able to buy and sell used DVDs in any given week (total economic surplus).

Instruction: Enter your response rounded to two decimal places.

$  per week.

Explanation / Answer

Answer a : Equilibrium price = $17.5

Equilibrium quantity = 10 units

Consumer surplus = 0.5* (Pmax - Equilibrium price) * Quantity

Consumer surplus = 0.5* (20-17.5)*10 = $12.5 per week

Answer b : Producer surplus

Producer surplus=0.5* ( Equilibrium price - Minimum price)*Q

PSc= 0.5*(17.5-10)*10 = $37.5 per week

Answer c : Total Economic surplus = Consumer surplus+Producer surplus

Total Economic surplus = $12.5+$37.5 = $50 per week

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