1. How can certain policies affect total surplus in a market equilibrium? In what ways can surplus be lost or gained in the presence of policy interventions? Use economic reasoning to support your answer. For this one, you will be discussing consumer and producer surplus, and what will happen to total surplus if there is an intervention within the market. When I say "Use economic reasoning", I mean the following.
2. Start with a supply and demand market equilibrium. Identify the consumer and producer surplus
3. Introduce a policy intervention (tax, subsidy, price control, etc.)
4. Identify the new market equilibrium after the policy intervention (the new market price, and quantity demanded)
5. With your new market price after the policy intervention, what is the new consumer and producer surplus? Did one grow while another shrank? Did they both shrink? Why did that happen?

Answer rating: 100% (QA)

Lets illustrate this with an example 1 Supply and Demand Market Equilibrium In a free market the equilibrium price P1 and quantity Q1 are determined b... View the full answer