CHAPTER 4

17. (a) Consumer surplus is represented by area A on the graph and is equal to (6
4) x 18 = $18 million.
Producer surplus is represented by area B on the graph and is equal to (4
2) x 18 = $18 million.

Price of
DVDs 7

6
Supply
5
A
4
B
3
Demand
2

0
3 6 9 12 15 18 21 24 27 30 Quantity of
DVDs
(millions)

(b) With underproduction of 9 million DVDs, consumer surplus is represented by

areas C + D, and is equal to (6 5) x 9 + (5 4) x 9 = $13.5 million.
Producer surplus is now represented by areas E + F, and is equal to (4 3) x 9
+ (3 2) x 9 = $13.5 million.
The deadweight loss is equal to areas G + H, and is equal to (5 4) x (18
9) + (4 3) x (18 9) = $9 million.

Price of
DVDs 7

6
Supply
C
5
D G
4
H
E
3
F
Demand
2

0
3 6 9 12 15 18 21 24 27 30 Quantity of
DVDs
(millions)
(c) With overproduction of 27 million units, the original amounts of consumer
surplus and producer surplus do not change and are still represented by areas
A and B, respectively, with values of $18 million each. The deadweight loss is
now located to the right of equilibrium, and is represented by area J, with a
value of (5 4) x (27 18) +
(4 3) x (27 18) = $9 million.

Price of
DVDs 7

6
Supply
5 A
4 J
B
3
Deman
2 d

0 3 6 9 12 15 18 21 24 27 30 Quantity
of DVDs
(millions)