Question

a) How to draw the implied stair-case demand and supply curves? b) If the equilibrium price is $6 per driveway how many households would like their driveways shovelled and how many teenagers will be willing to shovel driveways?

Seven households on your street are interested in having their driveways shovelled, and their willingness to pay values (demand) are: $14, $12, $10, $8, $6, $4, $2. At the same time, each of six teenagers is willingness to shovel snow from one driveway each day. Their "willingness to shovel" valuations (supply) are: $2, $3, $4, $5, $6, and $7.

How to compute the consumer surplus and the producer surplus?
How much do households actually pay to have their driveways shovelled?

Answer 1

Total Consumer's surplus is `=8+6+4+2+0=$.20`

Total Worker's surplus `=4+3+2+1+0=$10`

Explanation:

Here -

The consumer's surplus is the difference between the price consumers is willing to pay and the equilibrium price.

Consumer's surplus for the first person `=14-6=8`
Consumer's surplus for the second person `=12-6=6`
Consumer's surplus for the third person `=10-6=4`
Consumer's surplus for the fourth person `=8-6=2`
Consumer's surplus for the fifth person `=6-6=0`

Total Consumer's surplus is `=8+6+4+2+0=$.20`

The worker's surplus is the difference between the equilibrium price and the price teenager is willing to accept.

Worker's surplus for the first person `=6-2=4`
Worker's surplus for the second person `=6-3=3`
Worker's surplus for the Third person `=6-4=2`
Worker's surplus for the fourth person `=6-5=1`
Worker's surplus for the fifth person `=6-6=0`

Total Worker's surplus `=4+3+2+1+0=$10`

How much do households actually pay to have their driveways shovelled?

Households actually pay to have their driveways shovelled `= 5 xx $6=$.30`

What is the value of household's total willingness to pay?
The value of household's total willingness to pay`=14+12+10+8+6=$50`