1. Sketch a supply and demand model, labeling both curves, both axes, and the equilibrium price and equilibrium quantity.

a. Using this graph, SHOW consumer surplus and producer surplus. Provide intuitive explanations for why those two areas represent consumer and producer surplus.

b. Using the terms price, marginal benefit, marginal cost, consumer surplus, and producer surplus, economic surplus---Define the following terms or concepts (using these terms in the definitions).

(i) consumer surplus

(ii) producer surplus

(iii) economic surplus

(iv) Rational rule

(v) efficiency

2. Define market failure and give two examples. Explain why these two are examples of market failures.