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Muntasir Ahmmed - Tutorial 5

This document contains a student's answers to tutorial questions. [1] The student explains consumer surplus and producer surplus using graphs, showing the surplus areas. [2] The student defines deadweight loss as the total loss of consumer and producer surplus from underproduction or overproduction. [3] Further questions are answered about calculating consumer surplus in different iPhone price scenarios and identifying surplus and deadweight loss areas on a DVD market graph under conditions of equilibrium, underproduction and overproduction.

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Muntasir Ahmmed
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255 views5 pages

Muntasir Ahmmed - Tutorial 5

This document contains a student's answers to tutorial questions. [1] The student explains consumer surplus and producer surplus using graphs, showing the surplus areas. [2] The student defines deadweight loss as the total loss of consumer and producer surplus from underproduction or overproduction. [3] Further questions are answered about calculating consumer surplus in different iPhone price scenarios and identifying surplus and deadweight loss areas on a DVD market graph under conditions of equilibrium, underproduction and overproduction.

Uploaded by

Muntasir Ahmmed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Name: Muntasir Ahmmed

Student ID: AIU20092093

Tutorial 5

1. Explain the consumer surplus by the drawing a graph?

Answer:

Consumer surplus, also known as buyer’s surplus, is the economic measure of a customer’s
excess benefit. It is calculated by analyzing the difference between the consumer’s
willingness to pay for a product and the actual price they pay, also known as the equilibrium
price. A surplus occurs when the consumer’s willingness to pay for a product is greater than
its market price. In the above graph, we can see that the actual market price of a particular
quantity of a product is 18 but the consumer was willing to pay 30. Here, the yellow marked
area is the Consumer surplus.

2. Explain the producer surplus by the drawing a graph?

Answer:
Producer surplus is a measure of producer welfare. Producer surplus is the amount that a
seller is paid for a good minus the seller’s cost of providing it. In this above given figure,
PON is the producer surplus.

3. What is a deadweight loss?

Answer:

Deadweight loss: The total loss of producer and consumer surplus from
Underproduction or overproduction.

4. Melissa buys an iPhone for $240 and gets consumer surplus of $160.

a) What is her willingness to pay

Answer: Willingness to pay refers to the sum of the price paid and consumer surplus.
Hence, Melissa's willingness to pay is:

240 + 160= 400

b) If she had bought the iPhone on sale for $180, what would her consumer surplus
have been?

Answer: Her consumer surplus at a price of $180 would be;

400−180=220

C) If the price of an iPhone were $500, what would her consumer surplus have been?
Answer: If the price of an iPhone was $500, Melissa would not have purchased it since
the price is higher than her willingness to pay. Therefore, there is no consumer surplus she
would receive.

5. The following graph represents the market for DVDs.

a) Find the consumer surplus and producer surplus when the market is in
equilibrium by identifying these areas on the graph.

Answer:

The total consumer surplus is (1/2)*2*18=18

The total producer surplus is (1/2)*2*18=18


b) If underproduction occurs in this market, and only 9 million DVDs are
produced, what happens to the amounts of consumer surplus and producer
surplus? Identify the deadweight loss area on the graph.

Answer:

Consumer Surplus = [(6-4) 9]/2= 9

Producer Surplus = [(4-2) 9]/2= 9

Deadweight loss = 9 + 9 =18

c) If overproduction occurs in this market, and 27 million DVDs are produced,


what happens to the amounts of consumer surplus and producer surplus? Is
there a deadweight loss with overproduction? If so, Identify these areas on the
graph.

Answer:

Consumer Surplus = [(6-4) 27]/2 = 27

Producer Surplus = [(4-2) 27]/2 = 27

Deadweight loss = 27 + 27= 54


Here, there is a deadweight loss with overproduction.

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