Part A Figure 9.1 shows the market demand for a hypothetical produ demand for Greebes on the axes in Figure 9.2. Label the dema follow. Write the correct answer in the answer blanks or under * Figure 9.1 Demand for Greebes Price Quantity Demanded ($ per Greebe) (millions of Greebes) $. 10 350 .15 300 20 250 25 200 .30 150 35 100 .40 50 * Figure 9.2 Demand for Greebes 55 50 .45 40 .35 PRICE PER GREEBE 30 .15- .10 05 0 50 100 150 200 250 300 350 400 QUANTITY (millions of Greebes)Part C Once we have the demand curve, we can define the concept of consumer surplus. Consumer surplus is the value received from the purchase of a good in excess of the price paid for it, or stated differently, the difference between the amount a person is willing and able to pay and the actual price paid for each unit. An approximation of consumer surplus can be shown graphically as the area below the demand curve above the price paid. Redraw the first demand curve (D) from Figure 9.2 on Figure 9.5. If the price for all the quantities sold is established at $0.30, shade the area above $0.30 up to the demand curve. This is the area of consumer surplus. Continue to use the demand curve from Figure 9.2, and assume that the price is established at $0.30. There are buyers who will benefit because they are willing and able to pay higher prices than the estab- lished price ($0.30). For example, 50 million Greebes are demanded at $0.40, but since the market price is $0.30, there is a gain to the buyers represented by this 50 million. The gain is a total of $5 million ($0.10 x 50 million = $5 million). The buyers of the next 50 million Greebes (always consider the extra or marginal buyers since the buyers at the higher prices will also be willing to buy at the lower price) are willing to pay $0.35, providing a gain of $0.05 of the consumer surplus, for a total of $2.5 million. Advanced Placement Economics Microeconomics: Student Activities . National Council on Economic Education, New York, N.Y. 2 Microeconomics LESSON 1 ACTIVITY 9 (continued) Figure 9.5 Consumer Surplus 55 50 W .45 .40- .35 .30 PRICE PER GREEBE 50 100 150 200 250 300 350 400 QUANTITY (millions of Greebes) 5. Approximately what will be the total consumer surplus for the buyers of the 150 million Greebes at a price of $0.30? 6. If the price consumers pay increases, the shaded area (increases / decreases). If the price consumers pay decreases, the shaded area (increases / decreases). 7. If the equilibrium price drops to $0.20, what will happen to consumer surplus? (Increase / Decrease) 8. At $0.20, calculate the consumer surplus for buyers willing to pay (A) $0.40 (B) $0.35 (C) $0.30 (D) $0.25 (E) What is the total surplus? 9. Will there be any consumer surplus at a price of $0.20 for the buyers willing and able to spend $0.20, $0.15 or $0.10? Why or why not