Question

Assume that aggregate demand for lobster dinners in my neighborhood is given by P-60-5Q (note this is not the exact answer to Question 2 above) and that aggregate supply for lobster dinners from area restaurants is given by P-10+5 Both of these equations use quantities in hundreds; that is, the units on the x-axis is hundreds of dinners. a. (4 points)* Graph demand and supply. b. (4 points)* Algebraically solve for the equilibrium price and quantity. c. (4 points) Calculate consumer surplus and producer surplus and label them on your graph. d. (10 points)- Suppose 50 more people who like lobster move into my neighborhood. What happens, qualitatively, to equilibrium price and quantity? What happens to consumer and producer surplus? Are households better or worse off? Are restaurants better or worse off? Is "society" as a whole better or worse off?

Answer 1

Demand: p = 60 - 5Q Supply: P = 10 + 5 Q In equilibrium supply = Demand 10 + 5 Q = 60 - 5 Q 10 Q = 50 Q* = 5 P = 60 - (5 times 5) p* = 35 equilibrium price = $ 35 equilibrium quantity = 5 es = 1/2 times (60 - 35) times 5 = $ 62.5 PS = 1/2 times (35 - 10) times 5 = $ 62.5 \r\n Now 50 more people join previous Q = 5000 so Now Q = 5000 + 50 = 5050 = 5.05 (in thousand) at Q = 5.05 P^D = 60 - (5 times 5.05) = 34.75 P^S = 10 + (5 times 5.05) = 35.25 so there will be no equilibrium. As demand price = $ 34.75, producers have to charge 34.75 so at $ 34.75 supply will be 34.75 = 10 + 5 Q Q = 4.95