Exercises: Consumer and Producer Surplus

Liam is willing to pay at most $\$15$ for a ticket to a school basketball game. The ticket is sold at a market price of $\$11$, and he buys it. Define consumer surplus and calculate the consumer surplus Liam receives from this ticket.

Olivia sells handmade bracelets. The lowest price she would accept for one bracelet is $\$40$ because that covers her costs. She sells a bracelet at a craft fair for $\$55$. Define producer surplus and calculate the producer surplus Olivia receives from this sale.

A linear demand curve for a food truck's tacos starts at a vertical intercept of $\$14$ (the price at which quantity demanded is zero). The market equilibrium price is $\$6$, and the equilibrium quantity is 40 tacos per day. Calculate the consumer surplus at equilibrium, and identify which shape on the graph you used to find it.

In the market for a certain sneaker, demand is $P = 100 - 2Q$ and supply is $P = 20 + 2Q$, where $P$ is in dollars and $Q$ is in thousands of pairs. (a) Find the equilibrium price and quantity. (b) Calculate consumer surplus, producer surplus, and total surplus at equilibrium. (c) Explain what total surplus measures.

Use the same sneaker market: demand $P = 100 - 2Q$ and supply $P = 20 + 2Q$, with $Q$ in thousands of pairs. The government imposes a binding price ceiling of $\$40$. (a) Find the quantity supplied and the quantity that is actually traded at the ceiling. (b) Calculate consumer surplus and producer surplus under the ceiling, assuming the units are sold to the buyers with the highest willingness to pay. (c) Calculate the deadweight loss and explain what it represents.

Four students would each buy one used textbook. Their maximum willingness to pay is $\$12$, $\$10$, $\$8$, and $\$6$. Four sellers each have one textbook, and their minimum acceptable prices (their costs) are $\$3$, $\$5$, $\$7$, and $\$9$. The market price is $\$7$.

(a) How many textbooks are bought and sold at this price? Who trades?

(b) Calculate the consumer surplus, the producer surplus, and the total surplus.

(c) Explain why it would not increase total surplus to have the fourth buyer and the fourth seller trade.

In the sneaker market, demand is $P = 100 - 2Q$ and supply is $P = 20 + 2Q$, with $Q$ in thousands of pairs and $P$ in dollars. The government imposes a per-unit tax of $\$12$ on sellers.

(a) Find the quantity traded after the tax, the price buyers pay, and the price sellers keep after paying the tax.

(b) Calculate consumer surplus, producer surplus, and government tax revenue after the tax.

(c) Calculate the deadweight loss by comparing total surplus (including tax revenue) before and after the tax.

(d) Explain who bears more of the burden of the tax in this market and why the deadweight loss arises.

The market for an online video game subscription has demand $P = 60 - 3Q$ and supply $P = 12 + Q$, with $P$ in dollars per month and $Q$ in millions of subscribers. A technological improvement lowers every cost by $\$12$, so the new supply curve is $P = Q$.

(a) Find the equilibrium price and quantity before and after the improvement.

(b) Calculate consumer surplus and producer surplus in both cases.

(c) Compare the gains of consumers and producers, and argue which group benefits more and why. Report the change in total surplus.