The total gains from trade (consumer surplus + producer surplus) is largest at the equilibrium price. What
Question:
The total gains from trade (consumer surplus + producer surplus) is largest at the equilibrium price. What about the consumer surplus and producer surplus separately?
(a) Suppose a price is artificially high. Can the consumer surplus at the artificial price be larger than the consumer surplus at the equilibrium price? What about the producer surplus? Sketch possible supply and demand curves to illustrate your answers.
(b) Suppose a price is artificially low. Can the consumer surplus at the artificial price be larger than the consumer surplus at the equilibrium price? What about the producer surplus? Sketch possible supply and demand curves to illustrate your answers.
Step by Step Answer:
Applied Calculus
ISBN: 9781119275565
6th Edition
Authors: Deborah Hughes Hallett, Patti Frazer Lock, Andrew M. Gleason, Daniel E. Flath, Sheldon P. Gordon, David O. Lomen, David Lovelock, William G. McCallum, Brad G. Osgood, Andrew Pasquale