In a market for kitchen bags, the highest price consumers are willing to pay is $18...
In a market for kitchen bags, the highest price consumers are willing to pay is $18 for a 48 pack and the lowest price producers are willing to accept is $8 per pack. The market equilibrium price is $10 per pack, at which 12 million packs are sold. (Assume that both demand and supply curves are straight lines.)
A.)In the market above, what is the consumer surplus ($ million)?
B.)In the market above, what are the total gains from trade ($ million)?
Homework Answers
A. Consumer surplus is area below the demand curve and above the equilibrium price level.
Consumer surplus= 1/2*($18-$10)*12 million= $48 million
B. Total gains from trade is the total surplus. Total surplus is the area between the demand and the supply curve.
= 1/2*($18-$8)*12 million= $60 million
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