Figure 1 shows the market for paper.

1. At the market equilibrium, what are consumer surplus, producer surplus, and total surplus? Is the market for paper efficient? Why or why not?

2. Lobbyists for a group of news magazines persuade the government to pass a law that requires producers to sell 50 tons of paper a day. Is the market for paper efficient? Explain your answer and illustrate it on the figure.

3. An environmental lobbying group persuades the government to pass a law that limits the quantity of paper that producers sell to 20 tons a day. Is the market for paper efficient? If not, what is the deadweight loss?

Transcribed Image Text:

FIGURE 1 Price (dollars per ton) 9 7 5 3 0 10 20 30 D S + 40 50 60 70 Quantity (tons per day)