Question

The whole market from part (g) clears at a quantity of 2,000 units in the long run. If the constant long-run supply would intersect the y-axis at $3 and the demand curve intersects the y-axis at $5, what is the consumer surplus?

Answer 1

The consumer surplus to the given quantity is -$2,000.

Step-by-step explanation:

The consumer surplus can be calculated by finding the area between the demand curve and the price line up to the quantity of 2,000.

Since the demand curve intersects the y-axis at $5, the consumer surplus can be calculated as:

Consumer Surplus = (1/2) x Base x Height

Base = Quantity at the price line - Quantity at the demand curve intercept

= 2,000 - 0

= 2,000

Height = Price Line - Demand Curve Intercept

= $3 - $5

= -$2

Consumer Surplus = (1/2) x 2,000 x (-$2)

= -$2,000

Therefore, the consumer surplus in this scenario is -$2,000.