Importance of price elasticity of aggregate demand

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In class, we covered the concepts of producers' and consumers' surplus.

a. With respect to different government policies, explain how changes in producers' and consumers' surplus may be used to assess the aggregate welfare implications of such policies. You may use a specific policy for illustrative purposes. Please use a diagram in support of your answer.

b. With respect to part (a), explain what is meant by deadweight loss. What gives rise to deadweight loss?

c. With respect to (a), explain the importance of price elasticity of aggregate demand. That is, what are the different welfare implications with respect to consumer surplus when aggregate demand is elastic compared to when aggregate demand is inelastic?

Reference no: EM13137297

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