Question

1a. At the market​ equilibrium, calculate consumer surplus. Consumer surplus is ​$ nothing. 1b. At the market​ equilibrium, calculate producer surplus. Producer surplus is ​$ nothing. 2. Is the market for sunscreen​ efficient? Why? The market for sunscreen​ _____ efficient because​ _____. A. is​ not; total surplus is not maximum B. ​is; consumer surplus exceeds producer surplus C. ​is; total surplus is maximum D. is​ not; consumer surplus does not equal producer surplus

Answer 1

Answer:

1a. $500

1b. $250

2. The market for sunscreen is efficient because total surplus is maximum.

Diagram in question attached

Explanation:

1a. Consumer surplus is the difference between the maximum price that consumers are willing to pay and the price actually paid. This is the triangular area above the market equilibrium. In the market for sunscreen, consumers are willing to pay $20 for sunscreen but are actually only paying $10 (equilibrium price).

The formula for consumer surplus = 1/2 x (Qd at equilibrium) x (price willing to pay - price at equilibrium)

Note that consumer surplus is a triangle and the area of it is being found, hence the 1/2 :)

Consumer surplus = 1/2 x 100 x ($20 - $10)

1/2 x 100 x $10 = $500

1b. Producer surplus is the difference between the price producers receive and the minimum price they are willing to accept. This is the triangular area below the market equilibrium. In the market for sunscreen, suppliers are willing to produce at $5 but are actually receiving $10 (equilibrium price).

The formula for producer surplus = 1/2 x (Qs at equilibrium) x (price at equilibrium - price willing to receive)

Producer surplus = 1/2 x 100 x ($10 - $5)

1/2 x 100 x $5 = $250

2. The market for sunscreen is efficient because total surplus is maximum. Total surplus is maximized when the market is producing at the equilibrium price as in the current sunscreen market. At any other price, consumer or producer surplus would be reduced and a dead weight loss would be incurred.