S.5 Economics
Exercise 2: Total Social SurplusMax. mark = 32
Suggested AnswersMarks
1.Consumer surplus is the extra amount a consumer is willing to pay above whathe actually pays for a given quantity of goods. 2
Consumer surplus will be maximized when marginal benefit equals to price.1
2.Producer surplus is the extra amount a producer actually receives above
the minimum amount he must receive to produce a given quantity of goods.2
Producer surplus will be maximized when marginal cost equals to price.1
3.
4.
Q (units) / AVC ($) / TVC ($) / TC (4) / MC ($)2 / 3 / 6 / 13 / 4
3 / 4 / 12 / 19 / 6
4 / 5 / 20 / 27 / 8
5 / 6 / 30 / 37 / 10
6 / 7 / 42 / 49 / 12
The profit-maximizing output level is 4 units (marginal cost = price = $8)
Profit = $8 4 units – $7 – $5 4 units = $32 – $27 = $51
Producer surplus = $8 4 units – $5 4 units = $32 – $30 = $121
5.(a)
Q / AC / AB / TC / TB / MC / MB1 / 48 / 120 / 48 / 120 / 48 / 120
2 / 50 / 110 / 100 / 220 / 52 / 100
3 / 52 / 100 / 156 / 300 / 56 / 80
4 / 54 / 90 / 216 / 360 / 60 / 60
5 / 56 / 80 / 280 / 400 / 64 / 40
Correct calculation of the column of MC1
Correct calculation of the column of MB1
(b)Equilibrium price = $60 per unit1
Equilibrium quantity = 4 units1
(c)Consumer surplus = $360 – $60 4 = $1201
Producer surplus = $60 4 – $216 = $241
Total social surplus = $120+ $24= $1441
6.An increase in the number of LDH
Demand for FDH as their services are substitutes2
Excess supply of FDH1
The total wage income of all FDH in HK would decrease because
fixed monthly wage and smaller number of FDH.1
7.(a)Public limited company/listed company1
(b)(i)In a partnership,any given owner cannot transfer his/hershares of ownership without the consent of other partners while in a public limited company, the shares are freely transferable. 2
(ii)A partnership does not have independent legal status while a public limited company has an independent legal status. 2
NMH\s5econ\exercise\02surplusP. 1