Questions: Move the point, E, in the accompanying graph to reflect equilibrium in the competitive market for corn and answer the following questions. Calculate consumer surplus (CS). CS= Calculate producer surplus (PS). PS=

Move the point, E, in the accompanying graph to reflect equilibrium in the competitive market for corn and answer the following questions. Calculate consumer surplus (CS). CS= Calculate producer surplus (PS). PS=
Transcript text: Move the point, E , in the accompanying graph to reflect equilibrium in the competitive market for corn and answer the following questions. Calculate consumer surplus (CS). \[ \mathrm{CS}=\$ \] Calculate producer surplus (PS). \[ \mathrm{PS}=\$ \]
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Solution

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Solution Steps

Step 1: Find the equilibrium point

The equilibrium point E is where the supply and demand curves intersect. In the given graph, this occurs at a quantity of 5 (thousands of bushels) and a price of $4/bushel.

Step 2: Calculate Consumer Surplus (CS)

Consumer surplus is the area of the triangle formed by the demand curve, the price line, and the y-axis (price axis). The base of the triangle is the quantity (5) and the height is the difference between the y-intercept of the demand curve (9) and the equilibrium price (4). Therefore, CS = (1/2) * base * height = (1/2) * 5 * (9-4) = (1/2) * 5 * 5 = 12.5.

Step 3: Calculate Producer Surplus (PS)

Producer surplus is the area of the triangle below the price line and above the supply curve. The base of the triangle is the quantity (5), and the height is the difference between the equilibrium price (4) and the y-intercept of the supply curve, which is 1. Therefore, PS = (1/2) * base * height = (1/2) * 5 * (4-1) = (1/2) * 5 * 3 = 7.5.

Final Answer:

CS = $12.5 thousand

PS = $7.5 thousand

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