Homework 3:Producer/Consumer Surplus and Elasticity

ECON 102 – MicroeconomicsProfessor SchenkDue: January 25, 2009January 19, 2010

1. Refer to the graph above. The market represented here is in equilibrium when the price is:(a) $5.00 per unit and 220 units are bought and sold.(b) $8.15 per unit and 220 units are bought and sold.(c) $5.00 per unit and 400 units are bought and sold.(d) $3.65 per unit and 400 units are bought and sold.2. Refer to the graph above. Assume the market is in equilibrium, calculate the consumer surplus.3. Refer to the graph above. Assume the market is in equilibrium, calculate the producer surplus.4. Refer to your answers, what is the total surplus?5. Now assume price is held at $8.15 per unit. What is the consumer surplus? Did consumer welfareincrease or decrease?6. On October 28, 2008, the

Des Moines Register

reported gas prices fell 3 percent. The textbook, onpage 138, reported the elasticity of gasoline is 0.08. The United States consumes 9 million barrels of oil per day.1