meass06

Unit 6 Hints

Sample Economy-Wide TOTAL Surplus Calculation in a PERFECTLY Competitive Market, with NO Government Price Controls.

Economy-W ide Total Surplus (TS) = Consumer Surplus (CS) + Producer Surplus (PS) – any additional expense to the economy.

Consumer Surplus (CS) in a Perfectly Competitive Market Formula for area of a triangle: (height * base )/ 2

Height = high price minus low price

= $40 - $20 = $20

Base = large quantity minus smaller quantity = 4,000 - 0 = 4,000

CS = (height * base) / 2 = ($20 * 4,000) / 2

= ($80,000) / 2 Consumer Surplus (CS) = $40,000

PLUS Producer Surplus (PS) in a Perfectly Competitive Market

Formula for area of a triangle: (height * base )/ 2

Height = high price minus low price

= $20 - $0 = $20

Base = large quantity minus smaller quantity = 4,000 - 0 = 4,000

PS = (height * base) / 2 = ($20 * 4,000) / 2

= ($80,000) / 2 Producer Surplus (PS) = $40,000

MINUS Any additional expense to the economy (such as extra taxes that must be paid by

the citizens) In a perfectly competitive market with no government price controls, there are NO

additional expenses.

Economy-wide TOTAL surplus, in a perfectly competitive market with NO government price controls

Economy-wide Total Surplus (TS) = Consumer Surplus (CS) + Producer Surplus (PS) – any additional expense to the economy.

= $40,000 + $40,000 - $0 Economy-wide Total Surplus (TS) = $80,000

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Sample Economy-Wide TOTAL Surplus calculation in a PERFECTLY Competitive Market, with a government set legal price floor and in which the government buys the unsold excess at the price floor price, and must collect extra taxes to facilitate

that purchase. Economy-wide Total Surplus (TS) = Consumer Surplus (CS) + Producer Surplus (PS) –

any additional expense to the economy. Consumer Surplus (CS) with a government set legal price floor and in which the

government buys the unsold excess at the price floor price, and must collect extra taxes to facilitate that purchase.

Formula for area of a triangle: (height * base )/ 2

Height = high price minus low price

= $40 - $30 = $10

Base = large quantity minus smaller quantity = 2,000 - 0 = 2,000

CS = (height * base) / 2 = ($10 * 2,000) / 2

= ($20,000) / 2 Consumer Surplus (CS) = $10,000

PLUS

Producer Surplus (PS) with a government set legal price floor and in which the government buys the unsold excess at the price floor price, and must collect extra taxes to facilitate that purchase.

Formula for area of a triangle: (height * base )/ 2

Height = high price minus low price = $30 - $0

= $30 Base = large quantity minus smaller quantity

= 6,000 - 0 = 6,000

PS = (height * base) / 2 = ($30 * 6,000) / 2 = ($180,000) / 2

Producer Surplus (PS) = $90,000 MINUS

Any additional expense to the economy (such as extra taxes that must be paid by the citizens)

How much extra taxes does the government need to collect in order to buy the amount left unsold?

# Unsold = # supplied minus # sold to consumers = 6,000 - 2,000 = 4,000

Extra taxes required to buy the unsold amount = price * # unsold

= $30 * 4,000 = $120,000

Economy-wide TOTAL Surplus in a PERFECTLY Competitive Market, with a government set legal price floor and in which the government must collect extra

taxes to buy the unsold excess at the price floor price.

Economy-wide Total Surplus (TS) = Consumer Surplus (CS) + Producer Surplus (PS) – any additional expense to the economy.

= $10,000 + $90,000 - $120,000 Economy-wide Total Surplus (TS) = -$20,000