Identify the areas of consumer surplus and producer surplus

Reference no: EM1373990

Question 1. Create a supply and demand graph and identify areas of customer’s surplus and producer surplus. Given the demand curve, determine what impact will an risee in supply have on amount of customer surplus shown in your diagram? Describe your reasoning?

Question 2. Why are spillover costs and spillover benefits also called negative and positive externalities? Demonstrate graphically how a tax can correct for a negative externality and how a subsidy to producers can correct for a positive externality. How does a subsidy to consumers differ from a subsidy to manufacturer in correcting for a positive externality?

Reference no: EM1373990

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