1.The following graph represents the market for DVDs.

a. Find the values of consumer surplus and producer surplus when the market is in equilibrium, and identify these areas on the graph.

b. If underproduction occurs in this market, and only 9 million DVDs are produced, what happens to the amounts of consumer surplus and producer surplus?
What is the value of the deadweight loss? Identify these areas on the graph.

c. If overproduction occurs in this market, and 27 million DVDs are produced, what happens to the amounts of consumer surplus and producer surplus? Is there a deadweight loss with overproduction? If so, what is its value? Identify these areas on the graph.

Transcribed Image Text:

Price of DVDs 7 2 1 0 6 5 Supply 4 3 3 6 9 Demand 12 15 18 21 24 27 30 Quantity of DVDs (millions)