There is solutions and question, I need the explanation of the theory Consumers,

Question

There is solutions and question, I need the explanation of the theory Consumers, producers and the efficiency of markets each question why the answer that and I also need the explanation how to draw the graph like the answer. Need the understanding this

Problems and applications Lanlan buys an iPhone for $240 and gets consumer surplus of 160. a What is her willingness to pay? b If she had bought the iPhone on sale for $180, what would her consumer surplus have been? c If the price of an iPhone were $500, what would her consumer surplus have been? 1

Explanation / Answer

Answer

1)

a) Consumer Surplus is the benefit consumer receives by paying price less than what they are willing to pay.So, Cosnumer Surplus = Willingness To pay - Market Price  ---------------------- Eq(1)

=> 160 = Willingness To pay - 240

=> Willingness to Pay = 400

b) Now Willingness To Pay = 400. Using Equation (1)

Now Market Price = 180 and Willingness To Pay =400. Consumer Surplus = 400 - 180 = 220.

So Consumer Surplus = 220

c) If Price = 500. Then He will not recieve any benefit Because his willingness to pay is lesser than Price. Hence Consumer Surplus = 0..

2)

Because of desease Grape Crop Destroys hence There will be less grapes and Hence Producer Will supply less grapes at a given Price. As Supply changes due to factor other than its own Price and hence Supply Curve will shift and as supply decreases, Supply Curve will shift to the Left(Which is same as the graph mentioned in the solution).

Suppose Supply of Grapes Shift to the Left. We can see from above Graph that There will be less grapes and Price of grapes will increase. In making Wine Grapes are the main inputs. Hence. Increase in Price of the input(Grapes) Will increase cost of Production and hence suppliers will supply less at

the given Price. Hence Supply for Wine will shift to the Left.

FOR Grapes

Consumer Surplus Before Disease Area above P1 and Below Demand(D) curve = A + B + C .

Consumer Surplus Before Disease Area above P2 and Below D curve = A

Hence Change in Consumer Surplus = A-B-C-A = -B -C

Consumer Surplus Decreses by area B+C.

FOR WINE

Consumer Surplus Before Disease Area above P1 and Below D curve = D + E + F.

Consumer Surplus After Disease Area above P2 and Below D curve =D.

Hence Change in Consumer Surplus = D - D - E - F = -E - F.

Consumer Surplus Decreses by area E + F.

7)

a) If Cost of producing TV decreases then Suppliers will prefer to supply more at a given Price. Hence This will result in increase and RightWard Shift Of Supply Curve and Hence Supply Curve Will shift to the Right. This Rightward shift of Supply Curve will result in Increase in Quantity and decrease in Price.

b) Similarly what we have done we have to do it again.

From Figure 7.11

Consumer Surplus Before Decrease in Cost Area above P1 and Below D curve =A.

Consumer Surplus After Disease Area above P2 and Below D curve = A +B +C +D

Hence Change in Consumer Surplus = A+B+C+D - A = B+ C+ D

Suppose Consumer Surplus increses by area B + C+ D.

Producer Surplus Before Decrease in Cost Area Below P1 and Above Supply(S) curve =B+E.

Consumer Surplus After Disease Area below P2 and aboveS curve = E+F+G

Hence Change in Producer Surplus = F+G - B  

Suppose Producer Surplus increses by area F+G - B.

Hence Total Surplus increases by B + C+ D + F+G - B = C +D +F +G

c) If supply curve is very elastic then small change in price will result in huge change in Supply. Hence They have to sell all quantity of goods at a very close Prices. Hence This decrease in cost will result in Consumers extracting Most of the Surplus. Hence Consumers are benefited more from the falling cost. Note that If Supply Curve is more Elastic then Consumers are benefits and If demanded are more elastic then Producers are benefited.

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