Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 7, Problem 7P
To determine
The outcome in the vintage button market is Pareto or not.
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Students have asked these similar questions
The First Theorem of Welfare Economics (that
a competitive equilibrium is Pareto efficient)
may not hold for economies with production
if
Choose one or more:
1)there are decreasing returns to scale.
2)there are increasing returns to scale.
3)there are consumption externalities.
4)all firms act as competitive profit
maximizers.
5)there are production externalities.
Consumer surplus is calculated by taking the difference of the price consumers are willing to pay and the price actually paid.
When the price is $4, the consumer would buy only two bottles because the value the consumer would get from the first bottle is $7. This implies, the surplus is $3.
Similarly for the second bottle, the value the consumer would get from consuming it is $5 where the price the consumer will pay is $4, this implies the surplus is $1.
Lastly, for the third bottle the value is $3 and the price is $4 so the price surpasses the value, therefore the consumer will not consumer beyond two bottles.
The consumer surplus could be calculated as:
Consumer Surplus = (7-4) + (5-4)
= 3 + 1
= 2
This means the consumer will buy two bottles.
If the price falls to $2, the consumer would only buy three bottles because the value the consumer gets from the first bottle valued at $7 versus the $2 paid implies a consumer…
Consider the market for electric vehicles. The market price of each electric vehicle is $200,000, and each consumer demands no more than one
electric vehicle.
Suppose that Jake is the only consumer in the electric vehicle market. Their willingness to pay for an electric vehicle is $350,000. Based on Jake's
willingness to pay, the following graph shows his demand curve for electric vehicles.
Shade the area representing Jake's consumer surplus using the green rectangle (triangle symbols).
PRICE (Thousands of dollars)
400
Jake's Demand
350
300
250
200
150
100
50
Market Price
0
0
3
4
5
QUANTITY (Electric vehicles)
Jake's Consumer Surplus
Now, suppose another buyer, Latasha, enters the market for electric vehicles, and her willingness to pay is $250,000.
Based on Latasha's and Jake's respective willingness to pay, plot the market demand curve on the following graph using the blue points (circle
symbol). Next, shade Jake's consumer surplus using the green rectangle (triangle symbols), and…
Chapter 7 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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