Question

# Consider a perfectly competitive market where the market demand curve is given by Q = 76−8P...

Consider a perfectly competitive market where the market demand curve is given by Q = 76−8P and the market supply curve is given by Q=−8+4P. In situations （c）, determine the following items (i-viii)

(c) A market with subsidy S=9.

i) The quantity sold in the market.

ii) The price that consumers pay (before all taxes/subsidies).

iii) The price that producers receive (after all taxes/subsidies).

iv) The range of possible consumer surplus values.

v) The range of possible producer surplus values.

vi) The government receipts.

vii) The net benefit.

viii) The range of deadweight loss.

(i)

Subsidy shifts supply curve rightward by \$9 and new supply function is

Q = - 8 + 4(P + 9) = - 8 + 4P + 26 = 18 + 4P

Equating with demand,

76 - 8P = 18 + 4P

12P = 58

P = 4.83 (price paid by buyers)

Price received by sellers = 4.83 + 9 = 13.83

Q = 76 - (8 x 4.83) = 76 - 38.64 = 37.36

(ii)

In pre-subsidy equilibrium,

76 - 8P = - 8 + 4P

12P = 84

P = 7 (price paid by buyers)

[Q = - 8 + 4 x 7 = - 8 + 28 = 20]

(iii)

Price received by sellers after subsidy = 13.83

(iv)

From demand function, when Q = 0, P = 76/8 = 9.5

Consumer surplus (CS) = area between demand curve and price paid by buyers

= (1/2) x (9.5 - 4.83) x 37.36

= 18.68 x 4.67

= 87.24

(v)

From supply function, when Q = 0, P = 8/4 = 2

Producer surplus = area between price received by sellers and supply curve

= (1/2) x (13.83 - 2) x 37.36

= 18.68 x 11.83

= 220.98

(vi)

Government receipt = - Subsidy cost = - 9 x 37.36 = - 336.24

(vii)

Net benefit = CS + PS - Subsidy cost

= 87.24 + 220.98 - 336.24

= - 28.02

(viii)

Deadweight loss = (1/2) x Unit subsidy x Change in quantity

= (1/2) x 9 x (37.36 - 20)

= 4.5 x 17.36

= 78.12

#### Earn Coins

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
• ### 1. Consider a perfectly competitive market where the mar- ket demand curve is given by Q...

1. Consider a perfectly competitive market where the mar- ket demand curve is given by Q = 92-8P and the market supply curve is given by Q = -4 + 4P. In each of the following situations (a-e), determine the following items (i-viii) i) The quantity sold in the market. ii) The price that consumers pay (before all taxes/subsidies). iii) The price that producers receive (after all taxes/subsidies). iv) The range of possible consumer surplus values. v) The range of...

• ### 1. Consider a perfectly competitive market where the mar- ket demand curve is given by Q...

1. Consider a perfectly competitive market where the mar- ket demand curve is given by Q = 92-8P and the market supply curve is given by Q = -4 + 4P. In each of the following situations (a-e), determine the following items (i-viii) i) The quantity sold in the market. ii) The price that consumers pay (before all taxes/subsidies). iii) The price that producers receive (after all taxes/subsidies). iv) The range of possible consumer surplus values. v) The range of...

• ### 1. Consider a perfectly competitive market where the market demand curve is given by Q 72-4P and ...

Please answer question B 1. Consider a perfectly competitive market where the market demand curve is given by Q 72-4P and the market supply curve is given by Q-6+2P. In each of the following situations (a-e), determine the following items (i-vili) ) The quantity sold in the market. ii) The price that consumers pay (before all taxes/subsidies) ili) The price that producers receive (after all taxes/subsidies). iv) The range of possible consumer surplus values. v) The range of possible producer...

• ### Consider a perfectly competitive market where the market demand curve is given by Q = 72−4P...

Consider a perfectly competitive market where the market demand curve is given by Q = 72−4P and the market supply curve is given by Q = −6 + 2P. In each of the following situations (a-e), determine the following items v) The range of possible producer surplus values. vi) The government receipts. vii) The net benefit. viii) The range of deadweight loss. (a) A market with no intervention. (b) A market with tax T = 3. (c) A market with...

• ### Question 1 (45%): In a perfectly competitive market, the demand curve is given as: Q=100-5P, the supply curve is given...

Question 1 (45%): In a perfectly competitive market, the demand curve is given as: Q=100-5P, the supply curve is given as Q=3P-12. I. Compute the total social surplus of this market. (10%) II. If the government impose a tax on the producers, and the tax rate is \$2 per unit produced. What is the deadweight loss? (10%) III. If the government impose a tax on the consumers, and the tax rate is \$2 per unit purchased, graphically show the change...

• ### Question 1: In a perfectly competitive market, the demand curve is given as: Q=100-5P, the supply curve is given as Q=3P...

Question 1: In a perfectly competitive market, the demand curve is given as: Q=100-5P, the supply curve is given as Q=3P-12. Compute the total social surplus of this market. If the government impose a tax on the producers, and the tax rate is \$2 per unit produced. What is the deadweight loss? If the government impose a tax on the consumers, and the tax rate is \$2 per unit purchased, graphically show the change in the market equilibrium and the...

• ### 10.19. In a perfectly competitive market, the market demand curve is Qd = 10 -p, and...

10.19. In a perfectly competitive market, the market demand curve is Qd = 10 -p, and the market supply curve is Q 1.5P a) Verify that the market equilibrium price and quantity in the absence of government intervention are Pd= P 4 and Qd Q 6. b) Consider two possible government interventions: (1)A price ceiling of \$I per unit; (2) a subsidy of \$5 per unit paid to producers. Verify that the equilibrium market price paid by consumers under the...

• ### 3. Consider a perfectly inelastic supply curve at q = 1,013, and a perfectly elastic demand...

3. Consider a perfectly inelastic supply curve at q = 1,013, and a perfectly elastic demand curve at p = 101. A subsidy of \$5 per unit is given to producers. Using a diagram, explain how the subsidy is shared between consumers and producers. What is the Deadweight Loss? (30%)

• ### Problem 4: Competitive markets, equilibriua, and surplus. The market demand is Q-15-P, and the market supply...

Problem 4: Competitive markets, equilibriua, and surplus. The market demand is Q-15-P, and the market supply is Q-P/2. (a) Assume that the markct is perfectly compctitive. What are the cquilibrium price and (b) Assume that the market is perfectly competitive. What is the equilibrium consumer, (c) In order to support producers by i quantity? producer, and total surplus? tion quota of Q-4 units. What will the market clearing price be? At that price, g prices, the government imposes a produc-...

• ### 2. Consider a market where demand is given by Q = 60 – P and the...

2. Consider a market where demand is given by Q = 60 – P and the marginal cost for every firm is \$15. a. Assume the market is perfectly competitive. Find equilibrium price and quantity. Calculate consumer surplus, producer surplus, total surplus, and deadweight loss. b. Now assume that there is only one supplier in the market. Find equilibrium price and quantity. Calculate consumer surplus, producer surplus, total surplus, and deadweight loss. Is total surplus higher or lower compared to...

Free Homework Help App

Need Online Homework Help?

Most questions answered within 3 hours.