Consider three Perfectly Competitive scenarios. In each case, we have a perfectly competitive market. The market supply curve is given by P = Q where P is the market price and Q is the market quantity. In the first scenario, the market demand function is P = $50. In the second, the market demand function is P = $100 - Q, and in the third, the market demand function is Q = 50.
For each scenario, calculate the equilibrium price and quantity, the total consumer surplus, and the total producer surplus.
Finally, briefly explain what is happening to the Total Consumer Surplus as you go from the first to the second to the third scenario. More importantly, explain why this is happening. The best answers will be framed in terms of an elasticity.
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