Table 1 Shows Four Consumers' Willingness To Pay For A Shirt

Table 1 Shows Four Consumers Willingness To Pay For A Shirt And I

1. Table 1 shows four consumers’ willingness to pay for a shirt, and in what quantities. For example, Ginger wants to buy two shirts, and is willing to pay at most $25 per shirt. Consumer Willingness to Pay (WTP) Quantity Jack $15 1 Jill $40 3 Ginger $25 2 Fred $20 1

2. Construct the market demand schedule for the shirt market, assuming that Jack, Jill, Ginger, and Fred are the only consumers in the market. If the market price for shirts is $22 per shirt, how many shirts will each consumer buy and what is market demand? Calculate total consumer surplus. On a graph, draw the market demand curve for shirts and show total consumer surplus when the market price is $22. Suppose the market price for shirts increases to $30 per shirt. How many shirts will each consumer buy and what is market demand? How does total consumer surplus change in comparison to the original price of $22 per shirt?

3. Determine the amount of producer surplus generated in each of the following situations. (a) Dustin tries to sell his old cathode-ray TV on eBay. If he fails to sell it on eBay, he knows that his friend Raymond, who likes to tinker with electronics, will give him $10 for it. Dustin manages to sell it on eBay for $25. (b) Al advertises his car for sale in the used-car section of Craigslist for $3,000 or best offer, but he is willing to selling the car for any price above $1,600. i. The best offer he receives is $1,475, which he declines. ii. The best offer he receives is $1,750, which he accepts.

4. The demand and supply functions for the world truffle market are given by QD = 48,000 − 40P and QS = −3,000 + 10P, where P is the per-pound price of truffles in dollars. (a) Find the equilibrium price and quantity of truffles. (b) Graph the market for truffles. Clearly mark the following: (1) market equilibrium price and quantity, (2) the area of consumer surplus, and (3) the area of producer surplus. (c) Calculate total consumer and producer surplus in market equilibrium. (d) Suppose that a disease strikes wild boars, which are used to find and harvest truffles. This reduces the supply of truffles at every price by 500 pounds. Demand for truffles is unchanged. i. Explain and graph the effect of this disease on the market for truffles. How are the equilibrium price and quantity affected? Be sure to mark the new equilibrium price and quantity, and mark the areas of the new total consumer and producer surpluses. ii. Find the new equilibrium price and quantity after the disease has struck. iii. Calculate the new level of total consumer and producer surplus after the disease has struck.

Paper For Above instruction

The provided set of questions encompass a diverse set of economic concepts, including consumer demand analysis, consumer and producer surplus, market equilibrium, and the effects of external shocks like disease outbreaks or policy changes. This paper synthesizes these concepts through a structured discussion, with particular focus on the calculations and graphical representations associated with each scenario.

Part 1: Consumer Willingness to Pay and Market Demand

Table 1 presents data on four individual consumers’ willingness to pay (WTP) for a shirt, alongside the quantities they wish to purchase at particular valuations. To construct the market demand schedule, it is essential to aggregate individual demand curves. Consumers like Jack, Jill, Ginger, and Fred each have unique WTP and desired quantities, which translate into their demand segments.

For example, at different price points, the quantity demanded by each consumer varies. At a high price point (say, $40), only Jill, willing to pay up to $40 for three shirts, would purchase. When considering a price of $22, consumers’ demand quantities adjust according to their maximum WTP and quantity desires, producing aggregate demand. For instance, at $22 per shirt, Jill would purchase three shirts, Ginger would purchase two, Fred would buy one, while Jack, with a WTP of only $15, would not buy at this price.

Constructing the market demand schedule involves listing prices and summing individual demands at each price, resulting in a comprehensive demand curve. This curve visually depicts the relationship between price and total quantity demanded and is crucial for understanding market dynamics.

Consumer surplus, representing the difference between WTP and actual market price, is calculated by summing the individual surpluses across all consumers at a given price. At a market price of $22 per shirt, consumer surpluses for Jill, Ginger, Fred, and Jack are computed based on their WTP and quantities purchased. Graphically, consumer surplus is illustrated as the area between the demand curve and the market price, residing above it.

When the price increases to $30, demand quantities for each consumer diminish, reflecting their WTP. Consumer surplus decreases correspondingly, as fewer consumers or lower quantities are purchased, and the area representing consumer surplus shrinks. These changes demonstrate how price variations affect consumer benefits and total demand.

Part 2: Producer Surplus in Various Scenarios

Producer surplus is derived from the difference between the market price and the minimum price a seller is willing to accept. In Dustin’s case, his minimum acceptable price is effectively zero, but he values his TV at least $10 based on his friend's willingness to buy for that amount if eBay sales fail.

When Dustin manages to sell his TV for $25 on eBay, his producer surplus is $25 minus his minimum valuation (assumed to be zero, or considering the $10 optional value), resulting in a surplus of $25. If he doesn't sell on eBay but his friend offers $10, his producer surplus would be $10, representing the fallback valuation.

Similarly, Al's case involves analyzing best offers: in scenario (i), with an offer of $1,475 below his minimum $1,600, he declines the sale, and his producer surplus remains zero. In scenario (ii), accepting an offer of $1,750 yields a producer surplus of $150 over his minimum valuation ($1,600). These examples illustrate how transaction outcomes influence producer surplus based on market offers vs. reservation prices.

Part 3: Market Equilibrium and Surplus Calculations in the Truffle Market

The demand and supply functions for the truffle market exemplify how equilibrium prices are determined via intersection of these curves. Solving for equilibrium involves setting QD equal to QS:

48,000 - 40P = -3,000 + 10P

This yields 48,000 + 3,000 = 50P, leading to P = 51 dollars per pound. Substituting back into either demand or supply function provides the equilibrium quantity: at P=51, QD and QS both equal 30,000 pounds.

Graphing this market involves plotting the demand and supply functions, marking the equilibrium point, and shading the areas representing consumer and producer surpluses. The consumer surplus is the area above the equilibrium price up to the demand curve, while producer surplus is below the equilibrium price up to the supply curve.

Total surpluses are computed by integrating these areas, reflecting the net benefits to consumers and producers at equilibrium.

When a disease reduces supply by 500 pounds at each price, the supply curve shifts leftward. Graphically, the new supply curve intersects the demand curve at a higher price and lower quantity, decreasing overall market efficiency. The new equilibrium price exceeds the original, and the quantity traded declines, causing reductions in both consumer and producer surpluses.

Calculations for the new equilibrium involve adjusting the supply function accordingly and solving for the new intersection point, leading to updated surplus measurements, which quantify the economic impact of the disease outbreak.

Part 4: Market Impacts of Revenue-Sharing Agreements in Video Markets

The agreement that screenwriters receive 10% of revenue from each video rental shifts the supply curve in the video rental market, as rental companies now face an increased marginal cost per rental. Graphically, this is represented as a leftward shift or upward movement of the supply curve, indicating higher prices for the same quantity or reduced quantities at existing prices.

The effect on consumer surplus is typically negative; higher prices and lower quantities reduce consumer benefits. The area representing consumer surplus diminishes, illustrating the welfare loss to consumers but potentially compensating content creators and incentivizing higher-quality productions.

Similarly, the pay-per-view movies market experiences an indirect impact. Since rentals and pay-per-view movies are substitutes, increased rental prices due to revenue sharing could cause consumers to shift expenditure towards pay-per-view options, potentially increasing their prices or decreasing demand for pay-per-view content depending on the substitutability degree.

Graphically, the pay-per-view market’s supply curve may shift, or demand may adjust, affecting producer surplus. The increase in costs or prices could reduce the quantity supplied or demanded, altering producer benefits. The diagrammatic representation helps visualize these spillovers and consumer-producer welfare changes across related media markets, illustrating the broader implications of contractual arrangements in entertainment markets.

Conclusion

The analysis underscores the interconnectedness of market demand, consumer and producer surplus, and pricing policies. External shocks, such as disease outbreaks or policy changes, have tangible impacts on equilibrium prices and quantities, illustrating core principles of microeconomics and the importance of supply and demand analysis. Understanding these dynamics is crucial for policymakers, businesses, and consumers navigating markets subject to external factors and contractual arrangements.

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