Santa Claus always gives away exactly 1,000,000 toys per year, at a price of zero. It costs him nothing to produce these toys. There is also a market where toys can be purchased from commercial toy manufacturers.
a. Use a graph to show how the existence of Santa Claus affects the supply of toys, the price of toys, the number of toys that consumers acquire, and the number of toys that are provided by commercial manufacturers.
b. Use your graph to show how Santa affects the consumer surplus in the toy market and the producer surplus earned by commercial toy manufacturers. (Don't forget that the toys Santa gives away are free.)
c. According to your graph, how much does Santa add to social welfare? Explain why this answer may overestimate the true social value of Santa Claus.