EBK MICROECONOMICS
2nd Edition
ISBN: 9780134458496
Author: List
Publisher: VST
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Question
Chapter 7, Problem 1Q
To determine
The effect of change in the
Expert Solution & Answer
Explanation of Solution
The Elasticity of
Social surplus is the sum total of both
In part (a) of the above diagram, DD is the demand and elastic demand curve, SS is the supply curve, and the
So, if the elasticity of demand is higher, consumer surplus will be lower as what a consumer is willing to pay becomes equal to what they actually pay.
Thus, the social surplus will also be lower as it consists of consumer surplus.
Similarly,
DD is the demand curve, SS is the elastic supply curve and the equilibrium price is where DD and SS intersect. Producer surplus is calculated between the price and above the supply curve, which means the higher the elasticity of supply, the lower is the producer surplus which will decrease social surplus. As the elasticity of supply increases, producer surplus also increases as shown in part ( b ) of the diagram, which will increase social surplus.
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Students have asked these similar questions
Over the past few year's consumer tastes and
the number of buyers in the market for a
game called 'pickle ball' have increased
dramatically. Thus, the demand for tickets to
pickle ball events has increased. Before this
all started the equilibrium price of a ticket to a
pickle ball event was negative. This means
that:
A few years ago, there would have been a
surplus of tickets even at a price of zero, now
the invisible hand has pushed prices to
greater than zero.
A) A few years ago, the quantity of tickets
demanded was less than quantity supplied.
B) Pickle ball event tickets resembled the
market for recyclable cardboard a few years
ago
C) Greater demand for pickle ball tournament
tickets will lead to a greater demand - and
higher pay - for professional pickle ball
players.
D) All of the above.
E) B and D only
Define Surplus ?
Why doesn’t the change to equilibrium happen immediately when there is surplus in the market?
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