What is the value of consumer surplus (CS) and producer surplus (PS) at equilibrium?
Consider the market for a Procter and Gamble biodegradable detergent. Suppose that market demand is QD = 120 – 3P, and market supply is QS = –50 + 2P, where P is the price per case and Q is the quantity in thousands per week.
CS is calculated as the area of the triangle between demand and the market price, and PS is the area of the triangle between supply and the market price. Sketching a graph makes the calculation more apparent, as shown below. Note that when labeling vertical intercepts for the supply and demand equations, it is easier to first write each equation in inverse form, i.e., P = f(Q). In this case, the inverse demand equation is P = 40 – ?QD and the inverse supply equation is P = 25 + ½ QS.
See graph below.
Now, it‘s a simple matter to calculate the areas of each triangle.
CS = ½ * base * height = ½ * 18 * 6 = $54 thousand
PS = ½ * base * height = ½ * 18 * 9 = $81 thousand
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a. True b. False Indicate whether the statement is true or false
Suppose that the market for labor is initially in equilibrium. An increase in immigration will cause the equilibrium wage
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