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QUESTION

Both gadgets and widgets are selling at a market price of $10, and at that price you choose to buyexactly 30 gadgets and 30 widgets. Suppose that your demand curves for gadgets and widgets are bothstr

Both gadgets and widgets are selling at a market price of $10, and at that price you choose to buy

exactly 30 gadgets and 30 widgets. Suppose that your demand curves for gadgets and widgets are both

straight lines, but (at the market price of $10) your demand for gadgets is much more elastic than your

demand curve for widgets.

1.

Present this situation in a demand diagram (only one diagram, please!). How does your diagram

show the demand for gadgets is more elastic than the demand for widgets?

2.

Show your consumer surplus from consuming gadgets and from consuming widgets. Which

good gives you the highest consumer surplus?

3.

If forced at gunpoint to buy either an extra gadget or an extra widget, which would you buy?

4.

Illustrate (in the diagram drawn for question 1) the change in your consumer surplus as a result

of the forced transaction of question (3)

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