Problem 2. Welfare Economics. Consider the market shown in Figure 1. GRAPH ATTACHED BELOW 1. Assume the
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/06/667946338a1a0_859667946337b329.jpg)
Problem 2. Welfare Economics.
Consider the market shown in Figure 1.
GRAPH ATTACHED BELOW
1. Assume the economy reached the competitive equilibrium, with equilibrium quantity Q* and equilibrium price
P*Identify the following areas in the figure
(a) Consumer surplus.
(b) Producer Surplus.
(c) Value to buyers of consuming Q* units.
(d) Cost to sellers of producing Q* units.
(e) Total surplus.
2. Now assume there is a benevolent social planner interested in maximizing total surplus. The planner is
considering increasing quantity from Q*
to Q1 so that more consumers receive the benefit of consuming the
good.
(a) Identify the area corresponding to the cost of producing the additional Q1 ? Q* units.
(b) Identify the area corresponding to the value to buyers of consuming the additional Q1? Q* units.
(c) Is the idea of increasing the quantity from Q*
to Q1 a good idea from the point of view of market
efficiency?
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/06/66794633f304f_85966794633ddda1.jpg)