Question

Below is the market for funnel cakes at a small community fair.

Answer 1

From the graph given, the equilibrium price and quantities are given respectively as;

• Price = $5
• Quantity = 6 units of funnel cakes.

What is the total consumer spending on funnel cakes at the equilibrium point?

The total consumer spending(TCS) is achieved by finding the product of the price and the quantities at the equilibrium point.

Hence,
TCS = 5 * 6

= 60

What is the producer surplus and consumer surplus at equilibrium?

A) The producer surplus is the area of the triangle shaded yellow in the attached image.

Recall that he area of triangle is:

1/2 b *  h

b = 4

h = 6

Hence Area of the RA-Triangle (Producer Surplus) =

1/2 * 4 * 6

= 12

B) The Consumer surplus is the area of the triangle shaded Green in the attached image.

Recall that the area of triangle is:

1/2 b *  h

b = 4

h = 6

Hence Area of the RA-Triangle (Consumer Surplus) =

1/2 * 4 * 6

= 12

What would be the result if the suppliers charged $6?

If the suppliers charged $6, then the quantity demanded would drop to 4 units of  funnel cakes. It is demonstrated graphically. Recall that the law of demand and supply indicates that when prices goes up, demand comes down and vice versa.

Graph II illustrates what would happen if a large number of guests entered the fair. It would result to a right-ward shift in the demand curve.

Does the consumer surplus increase, decrease, or stay the same as a result of the change from part F?

Yes, there is an increase in the consumer surplus. Now there are more consumers hence the total amount they are willing to pay as an aggregate sum has increased from what was.

Learn more about Equilibrium market conditions:
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