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© 2007 Pearson Addison-Wesley. All rights reserved. 9–2
Figure 9.1 Consumer Surplus
5
4
3
2
1
p1
543210
CS2 = $1CS
1 = $2
E1 = $3 E
2 = $3 E3 = $3
Price = $3
q1
a
b
c
q, Magazines per week
q, Trading cards per year
DemandExpenditure, E
Consumersurplus, CS
Marginal willingness topay for the last unit of output
(a) David’s Consumer Surplus
Demand
(b) Steven’s Consumer Surplus
© 2007 Pearson Addison-Wesley. All rights reserved. 9–3
Application (Page 267) Willingness to Pay on eBay
Q, Number of wedding cake toppers July 2005
1 2 3 4 5 6 7
$?
$80$75
$70
$62
$51 $50
© 2007 Pearson Addison-Wesley. All rights reserved. 9–4
Figure 9.2 Fall in Consumer Surplus from Roses as Price Rises
Q, Billion rose stems per year
57.8
3230
1.160 1.25
b
a
A = $149.64 million
B = $23.2 million
C = $0.9 million
Demand
© 2007 Pearson Addison-Wesley. All rights reserved. 9–5
Table 9.1 Effect of a 10% Increase in Price on Consumer Surplus (Revenue and Consumer Surplus in Billions of 2004 Dollars)
© 2007 Pearson Addison-Wesley. All rights reserved. 9–6
Page 272 Solved Problem 9.1
Q, Units per weekQ1
Q3
Q2
p1
p2
e1
e2e
3 DC
BA
Relatively inelastic demand (at e1)
Relatively elastic demand (at e1)
© 2007 Pearson Addison-Wesley. All rights reserved. 9–7
Figure 9.3 Producer Surplus
p*
Q*
Market supply curve
Q, Units per year
Market price
Variable cost, VC
Producer surplus, PS
(b) A Market’s Producer Surplus
4
3
2
1
43210
PS2 = $2 PS3 = $1PS1 = $3
MC2 = $2 MC3 = $3 MC4 = $4MC1 = $1
p
Supply
q, Units per week
(a) A Firm’s Producer Surplus
© 2007 Pearson Addison-Wesley. All rights reserved. 9–8
Page 275 Solved Problem 9.2
Q, Billion rose stems per year
E = $4.05 million30
21
0 1.16 1.25
Supply
b
a
D = $104.4 million
F
© 2007 Pearson Addison-Wesley. All rights reserved. 9–9
Figure 9.4 Why Reducing Output from the Competitive Level Lowers Welfare
Q, Units per year
Supply
Demand
p2
MC1 = p1
Q2
Q1
e1
MC2
e2
C
E
B
D
A
F
© 2007 Pearson Addison-Wesley. All rights reserved. 9–10
Figure 9.5 Why Increasing Output from the Competitive Level Lowers Welfare
Q, Units per year
Supply
Demand
p2
MC1 = p1
Q2
Q1
e1
MC2
e2
C
F
B
D E
A
G H
© 2007 Pearson Addison-Wesley. All rights reserved. 9–11
Figure 9.6 Effect of a Restriction on the Number of Cabs
(a) Cab Firm
q2
q1q, Rides per month
E1
D
S1
S2
E2
B
A
C
AC2
AC1 MC
e2
e1
p2
p1
p2
p1
(b) Market
n2q
1Q
2 = n2q
2Q
1 = n1q
1Q, Rides per month
© 2007 Pearson Addison-Wesley. All rights reserved. 9–12
Figure 9.7 Welfare Effects of a Specific Tax on Roses
Q, Billion rose stems per year
3230
21
0
= 11
1.16 1.25
e1
e2
D
S
Demand
C
E
B
A
F
= 11¢
S + 11¢
© 2007 Pearson Addison-Wesley. All rights reserved. 9–13
Page 287 Solved Problem 9.3
Q, Billions of rose stems per year
39¢
30¢28¢
s = 11¢
1.25 1.34
e1
e2D
G
S
Demand
C
E
B
A
F
S 11¢
s = 11¢
© 2007 Pearson Addison-Wesley. All rights reserved. 9–14
Figure 9.8 Effect of Price Supports in Soybeans
Qd = 1.9 Q1 = 2.1
G
D
Qs = 2.20
Q, Billion bushels of soybeans per year
Qg = 0.3
p1 = 4.59
3.60
Supply
Demand
Price support
e
F
B
MC
A
C
E
p = 5.00—
© 2007 Pearson Addison-Wesley. All rights reserved. 9–15
Page 291 Solved Problem 9.4
2.1
G
D
2.2Q, Billions of bushels of soybeans per year
p1 = $4.59
p2 = $4.39
Supply
Demand
Price support
F
B
A
C
E
p = $5.00—
e1
e2
© 2007 Pearson Addison-Wesley. All rights reserved. 9–16
Page 293 Solved Problem 9.5
Q, Units per year
p3
p1
p2
Qs = Q2Qd Q
1
e1
e2
Dp, Price ceiling–
C
E
B
A
F
Supply
Demand
© 2007 Pearson Addison-Wesley. All rights reserved. 9–17
Figure 9.9 Loss from Eliminating Free Trade
9.0 10.28.2 11.8 13.1
Q, Million barrels of oil per dayImports = 4.9
14.70
0
29.04
Sa = S2
S1, World price
e2
e1
D
B
A
C
Demand
© 2007 Pearson Addison-Wesley. All rights reserved. 9–18
Figure 9.10 Effect of a Tariff (or Quota)
9.08.2 11.8 13.1
Q, Million barrels of oil per dayImports = 2.8
0
14.70
19.70
29.04
Sa = S2
S3
Demand
S1, World price
e2
e3
e1
= 5.00
F G H
B
A
C ED