Question

10 20- 30 Quantity 1 Figure 2.4: Loss of consumer surplus due to a price floor Given the following inverse demand and supply curves: m..4. 2 old-new 0 LSS and assuming that price is fixed below the equilibrium price at £5, the loss in producer surplus due to the price ceiling is: a. £3.50 b. £4.50 exc. pemand PC c. E8 d. £9. 5. The demand curve for good A is given by: Where P, is the price of good A, P, is the price of good B, and a, b, are positive constants. The supply curve for good A is also linear and is upward sloping: a. Goods A and B are complements.
On here I have to calculate the consumer surplus Change and on the second the producer surplus changw . I count the triangle of DEADWEIght loss in question 3 and I don’t in question 4... please explain !! How do I know when to count it ??

Answer 1

Answer:

Question 4) Option A:$3.5

Given

Demand function P=8-Qd/2

Qd=16-2P eq 1

Supply function  

P=2+Qs

Qs=P-2 Eq 2

at equilibrium Qs=Qd

16-2P=P-2

P=$6

Qs=Qd=4 units

Producer Surplus at equilibrium is area of triangle ABC

Producer surplus A=(6-2)*4/2=$8

if price is reduce to $5 then  

Qs=3 units

Producer Surplus at P=$5 is area of triangle CDE

producer surplus B = (5-2)*3/2=$4.5

And We need to find the change in producer surplus which is highlighted area =A-B=8-4.5=$3.5