Problem 1 Competitive Market Efficiency

(a) draw a diagram depicting the typical supply and demand relationships in a product market. (b) what is total surplus? Refer to the cost of production and consumer's willingness to pay in your answer. (c) suppose you are a benevolent dictator of your own country and you are interested in maximizing the total surplus in your country's economy. Suppose you control the quantity that is produced and sold in the market. Graphically illustrate the total surplus associated with 2 randomly chosen quantities in the market (put this on two separate diagrams). (d) now choose the quantity that maximizes total surplus. Show this quantity on a graph and indicate total surplus. (e) is this the same quantity that the competitive market would have provided in equilibrium? What are the market forces leading to this quantity? (f) If your economy is not well-developed so that there is only one producer of consumer products in your country, is the market outcome likely to be efficient? Support your answer with a graph.