Question

Basic Microeconomics D-S Analysis: Suppose the demand and supply curves are specified as: Qa = 100-P & Q. =P -20. (a) What is the equilibrium price and quantity in this market? (b) Solve for producer surplus and consumer surplus at equilibrium. (c) Construct a D-S diagram depicting (a) and (b) above. (d) Suppose the government sets a price ceiling = $50. i. Solve for the surplus or shortage at this price. ii. Solve for the resulting consumer surplus and producer surplus. 111. Solve for the deadweight loss. (e) Construct another separate D-S diagram depicting the three parts of (d) above. Depict the price ceiling and show the resulting surplus or shortage.

Answer 1

Qd = 100-p L Qs = p-20 equilibrium is when Qd = Qs 100 - p = p-20 120 = zp [ p*=60 Q=100-60 [Q* = 40 fra started with Scanner

11 To Price ceiling = P'= $.50 m 3 W at Pl=so Qd = 100-50=50 at P-50 Qs = 50-20=30 . = Os oedd to supply of dimand There is a shortage. Shortage = demand - Supply Os 1,50-30 = 20 units (e) Crraph 100m own HTT O jo 40 100 50 cs = area of ABCF PS = area AFCD Dead weight loss COWL) = area of A BEC (a) (ii) Cs = area of A AGBt area of GBCF E x (100–70)(30) $ 670-50 (30) 3 4x30 (39) K 002630) 105].sg fos scanned with cm Scanner

PS = area of AFCD IX C50-20) (30) = 1450 sq units Ciii) Dead weight loss = ara f A BEC = 1 x70-50) C40-30) = 1 x 20x10 . =(1oof Ag units. 2_Scannellazith_ CamScanner

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