ECON 260 Lecture Notes - Opportunity Cost, Demand Curve, Economic Surplus

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Answers to chapter 8 analytical problems: suppose that site a and b both give the same benefits in terms of use as a water treatment plant (and all other uses). Using site a has an opportunity cost of. ,000 (what it would sell for) while site b has an opportunity cost of ,000 (the purchase price). Other factors include the current use of site a. The original supply curve is mc0= 0. 5q with a supply curve after the regulation of mc1=10+0. 5q. Before the regulation the price is . 5 and the equilibrium quantity is 45 units. After the regulation mc increases to mc1= 10+0. 5q so that the price increases to and equilibrium quantity falls to 40. Initially the producer surplus is . 25, the consumer surplus is. . 75 and the total private surplus is . After the regulation, producer surplus falls to as the quantity falls proportionately by more than the price increase.

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