Consumer and Producer Surplus In a Very Small market Keri and John again But thi
ID: 1208954 • Letter: C
Question
Consumer and Producer Surplus In a Very Small market Keri and John again But this time, the tutoring can be for different numbers of hours each week. As Keri gives up more and more hours of free time each week to tutor John, the additional hours she gives up are worth more and more to her, so she would be willing to increase her hours only if she is paid more per hour. As John gets more and more hours of tutoring each week, each additional hour of tutoring is worth less and less to him, so he would be willing to get additional hours only if he pays less per hour. Assume that Keri's supply of tutoring, and John's demand, are as follows: Note For Keri each price is the smallest amount she would accept per hour to supply the associated number of hours For John, each price is the largest amount he would pay per hour to demand the associated number of hours. Assume that whenever Keri or John are indifferent about a particular hour of tutoring, that hour of tutoring takes place. Suppose Keri and John agree on a price of $40 per hour for tutoring (i.e., each hour will cost $40, regardless of the number of hours), How many hours will Keri end up tutoring John? For this number of hours, calculate: Keri's total producer surplus each week, John's total consumer surplus each week. Suppose a price ceiling of $10 per hour on tutoring is imposed, and effectively enforced, How many hours will Keri tutor John now? Calculate Keri's total producer surplus each week; John's total consumer surplus each week the weekly deadweight loss caused by the price ceiling (compared to the initial situation when the price is $40 per hour). Suppose a price floor of $60 per hour is imposed, and effectively enforced How many I hours will Ken tutor John now? Calculate: Keri's total producer surplus each week; John's total consumer surplus each week; the weekly deadweight loss caused by the price Door (compared to the initial situation when the price is $40 per hour)Explanation / Answer
1. 4 hours per week
a. John's consumer surplus = 1/2(max price - market price)*Q
= 1/2(80-40)*4
= 80
b. Keri's Producer Surplus = 1/2(market price - min price)*Q
= 1/2(40-0)*4
= 80
2.
1 hour per week
a. John's consumer surplus = (john demand - market price)*Q
= (70-10)*1
= 60
Keri's Producer Surplus = (market price - min price)*Q
= 1/2(20-0)*1
= 10
Dead Weight Loss = 1/2(40-10)*(4-1) + 1/2(70-40)*(4-1) = 90
3.
2 hour per week
a. John's consumer surplus = (john demand - market price)*Q
= 1/2(70-60)*2
= 10
Keri's Producer Surplus = (market price - min price)*Q
= (60-10)* + (60-20)
= 90
Dead Weight Loss = 1/2(60-10)*(4-2) + 1/2(70-60)*(4-2) = 60
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