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Material Type: Exam; Class: PRIN ECON-PRICE THEORY; Subject: Economics; University: Appalachian State University; Term: Unknown 1989;
Typology: Exams
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Chapter 7
Figure 5
In the market for lemonade, the higher cost of lemons reduces the supply of lemonade, as shown in Figure 6. The result is a rise in the price of lemonade and a decline in consumer surplus from D + E + F to just D, a loss of E + F. Note that an event that affects consumer surplus in one market often has effects on consumer surplus in other markets.
Figure 6
Figure 7
The increased quantity of French bread being sold increases the demand for flour, as shown in Figure 8. As a result, the price of flour rises, increasing producer surplus from area D to D + E + F. Note that an event that affects producer surplus in one market leads to effects on producer surplus in related markets.
Figure 8
Chapter 9
area B + C, so total surplus is A + B + C.
Figure 3
b. When the U.S. orange market is opened to trade, the new equilibrium price is
D + E. Producer surplus decreases from B + C to C. Total surplus changes from A + B + C to A + B + C + D + E, an increase of D + E.
surplus, producer surplus, government revenue, and total surplus both before (OLD) and after (NEW) the imposition of the tariff, as well as the change (CHANGE). Since consumer surplus declines by C+D+E+F while producer surplus rises by C and government revenue rises by E, the deadweight loss is D+F. The loss of consumer surplus in the amount C+D+E+F is split up as follows: C goes to producers, E goes to the government, and D+F is deadweight loss.
Figure 6
Before Tariff After Tariff CHANGE Consumer Surplus A+B+C+D+E+F A+B –(C+D+E+F) Producer Surplus G C+G +C Government Revenue 0 E +E Total Surplus A+B+C+D+E+F+G A+B+C+E+G –(D+F)