Suppose the graph below depicts the market for fresh salmon

Suppose the graph below depicts the market for fresh salmon. Answer the questions based on the information in the agraph. 20 18 16 14 12 10 The equilibrium point (50,8) is efficient only if all of the benefits and costs of salmon consumption and production are considered. people like salmon more than catfish, so they get more utility eating salmon. salmon fishers all make a profit that is high enough to keep them in the market. everyone who wants salmon for dinner has O Supply O salmon for dinner 4 Demand 0 10 20 30 40 50 60 70 80 90 100 Quantity (lbs.) When the efficient level of output is produced,When the efficient level of output is produced, what is the value of consumer surplus? what is the value of producer surplus? Number Number $0

Solution

Question 1. Option 1: all of the benefits and costs of salmon consumption and production are considered.

Explanation: Without considering the benefits and costs of salmon consumption and production, the market equilibrium does not reflect the true social costs (private costs + external costs) and social benefits (private benefits + external benefits). In such a case, the market equilibrium would not be an efficient allocation.

Question 2: Consumer surplus refers to the area between the price line and the demand curve. So, the value of consumer surplus = 1/2 * (50 - 0) * (18-8) = 1/2 * 50 * 10 = 25 * 10 = 250

Question 2: Producer surplus refers to the area between the price line and the supply curve. So, the value of producer surplus = 1/2 * (50 - 0) * (8-2) = 1/2 * 50 * 6 = 25 * 6 = 150