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Chapter 7

ECON 1B03 Chapter Notes - Chapter 7: Adding Machine, Apple Juice, Economic Surplus


Department
Economics
Course Code
ECON 1B03
Professor
Hannah Holmes
Chapter
7

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Problems and Applications
1. If a drought in Nova Scotia reduces the apple harvest, the supply curve for apples shifts to the
left, as shown in Figure 5. The result is a rise in the price of apples and a decline in consumer
surplus from A + B + C to just A. So consumer surplus declines by the amount B + C.
Figure 5
In the market for apple juice, the higher cost of apples reduces the supply of apple juice, as
shown in Figure 6. The result is a rise in the price of apple juice and a decline in consumer
surplus from D + E + F to just D, a loss of E + F. Note that an event that affects consumer
surplus in one market often has effects on consumer surplus in other markets.
128
7
CONSUMERS, PRODUCERS, AND
EFFICIENCY OF MARKETS

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129 Chapter 7/Consumers, Producers, and Efficiency of Markets
Figure 6
2. A rise in the demand for French bread leads to an increase in producer surplus in the market for
French bread, as shown in Figure 7. The shift of the demand curve leads to an increased price,
which increases producer surplus from area A to area A + B + C.
Figure 7
The increased quantity of French bread being sold increases the demand for flour, as shown in
Figure 8. As a result, the price of flour rises, increasing producer surplus from area D to D + E +
F. Note that an event that affects producer surplus in one market leads to effects on producer
surplus in related markets.

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Chapter 7/Consumers, Producers, and Efficiency of Markets 130
Figure 8
3. a. Bert’s demand schedule is:
Price Quantity Demanded
More than $7 0
$5 to $7 1
$3 to $5 2
$1 to $3 3
$1 or less 4
Bert’s demand curve is shown in Figure 9.
Figure 9
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