ECO 365 Week 2 Worksheet

Complete the Worksheet.

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1. April, Barbara, and Cathy are considering whether or not to purchase tickets to see the musical Wicked. April would pay as much as $75, Barbara would pay as much as $60, and Cathy would pay as much as $55 for a ticket. If the actual price is $50, how much consumer surplus is created when all three women purchase their tickets?

2. If government takes no action in response to a negative externality, is it likely that this activity will take place more or less than the socially optimal amount?

3. Assume a seller would be willing to accept a price as low as $100 each for 5 machines, but the buyer offers a price of $150 each, which the seller accepts. Calculate total producer surplus in this example:

4. Use the graph below to answer the question:

Calculate consumer surplus in this market assuming the price of the product is $4: