Toys are produced by a competitive industry. Santa Claus gives away one million free toys each year. It costs Santa nothing to produce these toys.
Illustrate Santa’s effect on consumer’s surplus and the producer surplus earned by commercial toy manufacturers. (Hint: Remember that the toys Santa distributes are free.)
According to your graph, how much does Santa add to social welfare? Explain why this answer may overestimate the true social value of Santa Claus. (Hint: How does Santa decide who gets the toys?)