The diagram below shows the market for fluorescent bulbs. The letters represent the enclosed areas. (Note: Do not assume that graphs on an FRQ question are to scale.)
A. Suppose that the market for fluorescent bulbs is in equilibrium. Using the labeling on the graph, identify each of the following.
1. The area of total economic surplus (consumer surplus and producer surplus combined)
2. The amount of the deadweight loss
B. Now suppose that a price for fluorescent bulbs is being charged so that the quantity supplied exceeds the quantity demanded.
1. Indicate whether underproduction or overproduction is occurring in the market.
2. Calculate the amount of deadweight loss which will occur, and explain why a deadweight loss occurs. (Note: You must show your work to receive credit.)
C. At what price and quantity on the graph will the price of fluorescent bulbs be equal to the marginal cost of fluorescent bulbs?
