ADVANCED ANALYSIS Assume the following values for Figures 4.4a and 4.4b: Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market eq

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ADVANCED ANALYSIS Assume the following values for Figures 4.4a and 4.4b: Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market eq

uilibrium price is $45 per bag. The price at a is $85 per bag. The price at c is $5 per bag. The price at f is $59 per bag. The price at g is $31 per bag. Apply the formula for the area of a triangle (Area = ½ × Base × Height) to answer the following questions. LO4.2 What is the dollar value of the total surplus (producer surplus plus consumer surplus) when the allocatively efficient output level is being produced? How large is the dollar value of the consumer surplus at that output level? What is the dollar value of the deadweight loss when output level Q2 is being produced? What is the total surplus when output level Q2 is being produced? What is the dollar value of the deadweight loss when output level Q3 is produced? What is the dollar value of the total surplus when output level Q3 is produced?

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stepan [3.5K] · Answer 1 · 2026-03-09T09:28:08+03:00

The total economic surplus is represented by the area enclosed by points a, b, and c. To compute this surplus, we apply the triangle area formula: Area = ½ × Base × Height. The area situated between the demand and supply curves from 0 to 20 units illustrates the total surplus. This triangle has a base of $80 (the initial price at Q = 0, between points a and c) and a height of 20 (units bought at equilibrium). Thus, total surplus calculates as (1/2) × $80 × 20 = $800. Consumer surplus can be evaluated as the area between the demand curve and the price at equilibrium. Here, the base is $40 (the difference between the demand price at Q = 0, or $85, and the equilibrium price of $45), and again, the height is 20 (units purchased in equilibrium), resulting in a consumer surplus of (1/2) × 40 × 20 = $400. In terms of deadweight loss, it is identified as the variance in total surplus between efficient output level Q1 and constrained output at Q2. This can be expressed as the area of a triangle outlined by points b, d, and e. The base is determined by the price differential at points d and e (i.e., $55–$35 = $20), with a height from Q1 = 20 to the restricted output level Q2 = 15, which is 5 units. Therefore, the deadweight loss equals (1/2) × $20 × 5 = $50. The remaining total surplus is then $800 (initial efficient surplus) less $50 (deadweight loss), leading to a total of $750. For deadweight loss due to overproduction, this is calculated as the surplus difference between an efficient output level Q1 and an additional output level at Q3. The triangle area is defined by points b, f, and g, with the base as the price difference at points f and g ($59–$31 = $28) and a height derived from the excess output where Q3 = 27 and Q1 = 20 (7 units difference). Hence, the deadweight loss figures as (1/2) × $28 × 7 = $98. Consequently, the remaining total surplus now is $800 (maximum surplus) minus $98 (deadweight loss), equating to $702. It's noteworthy that maximum total surplus occurs at the equilibrium quantity, while inefficiencies arising from overproduction diminish the surplus.