00:01
All right, to solve this problem, let's break it down.
00:03
We took a couple steps.
00:05
So first we have consumer surplus.
00:07
So consumer surplus is the area between the demand curve and the price level above the equilibrium price.
00:12
So in this case, the equilibrium price is $3, and you calculate consumer surplus by drawing the triangle between the demand curve and the price.
00:19
Next, producer surplus.
00:21
It's the area between this price level and the supply curve below the equilibrium price.
00:25
So it was also represented as a triangle under the equilibrium price and above the surplus.
00:30
Supply curve and total surplus is the sum of consumer surplus and producer surplus so it represents the total net benefit to society from producing and consuming the good at the equilibrium level so to explain market efficiency is the market is efficient when the total surplus is maximized meaning both consumer and producer surplus are as large as possible and this occurs at the equilibrium price and quantity so when we solve for this question the market for paper is efficient because option c at the market equilibrium marginal benefit equals marginal cost and the total surplus is maximized and it's the condition for an efficient market all right and the consumer surplus on paper equals so given the graph the equilibrium prices at three dollars per ton the highest point on the demand curve with the price intersip to the six dollars per ton and the equilibrium is 40 tons so the formula for the area of triangle equals one half times base times height.
01:33
And so the base of the triangle is the equilibrium quantity, 40 tons...