The American demand and supply of oranges cross at a price of $8, but all Americans are free to buy or
sell oranges on the world market at a price of $5.
What is the price Americans pay for oranges? What price do the US producers feel they are
On a demand and supply diagram show
the consumer surplus,
(US) producer surplus and
the total surplus for Americans.
One day, the U.S. government announces that it will pay $6 apiece for American oranges and will buy
as many oranges as Americans want to sell at that price. The government then takes these oranges and
resells them on the world market at $5 apiece.
Redo questions 10 and 11, using
the same diagram.
Illustrate the deadweight loss (in
the same diagram).