xBookUtils.showAnswers['krugmanwellsmodulesmicro3-s04m11-cyu-1'] = "
A consumer buys each pepper if the price is less than (or just equal to) the consumer’s willingness to pay for that pepper. The demand schedule is constructed by asking how many peppers will be demanded at any given price. The accompanying table illustrates the demand schedule.
Price of pepper | Quantity of peppers demanded | Quantity of peppers demanded by Casey | Quantity of peppers demanded by Josey |
---|---|---|---|
$0.90 | 1 | 1 | 0 |
0.80 | 2 | 1 | 1 |
0.70 | 3 | 2 | 1 |
0.60 | 4 | 2 | 2 |
0.50 | 5 | 3 | 2 |
0.40 | 6 | 3 | 3 |
0.30 | 8 | 4 | 4 |
0.20 | 8 | 4 | 4 |
0.10 | 8 | 4 | 4 |
0.00 | 8 | 4 | 4 |
A producer supplies each pepper if the price is greater than (or just equal to) the producer’s cost of producing that pepper. The supply schedule is constructed by asking how many peppers will be supplied at any price. The accompanying table illustrates the supply schedule.
Price of pepper | Quantity of peppers supplied | Quantity of peppers supplied by Cara | Quantity of peppers supplied by Jamie |
---|---|---|---|
$0.90 | 8 | 4 | 4 |
0.80 | 7 | 4 | 3 |
0.70 | 7 | 4 | 3 |
0.60 | 6 | 4 | 2 |
0.50 | 5 | 3 | 2 |
0.40 | 4 | 3 | 1 |
0.30 | 3 | 2 | 1 |
0.20 | 2 | 2 | 0 |
0.10 | 2 | 2 | 0 |
0.00 | 0 | 0 | 0 |
When the price is $0.70, Cara’s producer surplus from the first pepper is $0.60, from her second pepper $0.60, from her third pepper $0.30, from her fourth pepper $0.10, and she does not supply any more peppers. Cara’s individual producer surplus is therefore $1.60. Jamie’s producer surplus from his first pepper is $0.40, from his second pepper $0.20, from his third pepper $0.00 (since the price is exactly equal to his cost, he sells the third pepper but receives no producer surplus from it), and he does not supply any more peppers. Jamie’s individual producer surplus is therefore $0.60. Total producer surplus at a price of $0.70 is therefore $1.60 + $0.60 = $2.20.
"; xBookUtils.showAnswers['krugmanwellsmodulesmicro3-s04m11-ct-1'] = ""; xBookUtils.showAnswers['krugmanwellsmodulesmicro3-s04m12-cyu-1'] = "The quantity demanded equals the quantity supplied at a price of $0.50, the equilibrium price. At that price, a total quantity of five peppers will be bought and sold. Casey will buy three peppers and receive consumer surplus of $0.40 on his first, $0.20 on his second, and $0.00 on his third pepper. Josey will buy two peppers and receive consumer surplus of $0.30 on her first and $0.10 on her second pepper. Total consumer surplus is therefore $1.00. Cara will supply three peppers and receive producer surplus of $0.40 on her first, $0.40 on her second, and $0.10 on her third pepper. Jamie will supply two peppers and receive producer surplus of $0.20 on his first and $0.00 on his second pepper. Total producer surplus is therefore $1.10. Total surplus in this market is therefore $1.00 + $1.10 = $2.10."; xBookUtils.showAnswers['krugmanwellsmodulesmicro3-s04m12-cyu-2a'] = "If Josey consumes one fewer pepper, she loses $0.10 (her consumer surplus on the second pepper when market price is $0.50); if Casey consumes one more pepper, he loses $0.20 (his willingness to pay for his fourth pepper is only $0.30 but the market price is $0.50). This results in an overall loss of consumer surplus of $0.10 + $0.20 = $0.30."; xBookUtils.showAnswers['krugmanwellsmodulesmicro3-s04m12-cyu-2b'] = "Cara’s producer surplus on the last pepper she supplied (the third pepper) at a market price of $0.50 is $0.10, and Jamie’s loss in terms of producer surplus of producing one more (his third pepper, which costs $0.70 to produce) is $0.20 at a market price of $0.50. Total producer surplus therefore falls by $0.10 + $0.20 = $0.30."; xBookUtils.showAnswers['krugmanwellsmodulesmicro3-s04m12-cyu-2c'] = "Josey’s consumer surplus from her second pepper is $0.10; this is what she would lose if she were to consume one fewer pepper. Cara’s producer surplus from producing her third pepper is $0.10; this is what she would forego if she were to produce one fewer pepper. Therefore, if we reduced quantity by one pepper, we would lose $0.10 + $0.10 = $0.20 of total surplus."; xBookUtils.showAnswers['krugmanwellsmodulesmicro3-s04m12-cyu-3'] = "There will be many sellers willing to sell their books but only a few buyers who want to buy books at that price. As a result, only a few transactions will actually occur, and many transactions that would have been mutually beneficial will not take place. This, of course, is inefficient."; xBookUtils.showAnswers['krugmanwellsmodulesmicro3-s04m12-ct-1'] = "The new guideline is likely to reduce the total life span of kidney recipients because older recipients (those with small children) are more likely to get a kidney compared to the original guideline. As a result, total surplus is likely to fall. However, this new policy can be justified as an acceptable sacrifice of efficiency for fairness, because society is likely to agree that it is a desirable goal to reduce the chance of a small child losing a parent."; xBookUtils.showAnswers['krugmanwellsmodulesmicro3-s04m12-ct-2'] = "Markets, alas, do not always lead to efficiency. When there is market failure, the market outcome may be inefficient. This can occur for three main reasons. Markets can fail when, in an attempt to capture more surplus, one party— a monopolist, for instance—prevents mutually beneficial trades from occurring. Markets can also fail when one individual’s actions have side effects—externalities—on the welfare of others. Finally, markets can fail when the goods themselves—such as goods about which some relevant information is private—are unsuited for efficient management by markets."; var imagesSmall = ","; var imagesMedium = ","; var imagesLarge = "krugmanwellsmodulesmicro3-sect04-figure-7,krugmanwellsmodulesmicro3-sect04-figure-9"; var imagesXlarge = ","; var imagesXXlarge = ",,,,,,"; var imagesXXXlarge = ",,,"; var tableRowColorAlternate = "krugmanwellsmodulesmicro3-s04m11-cyu-1";