Question

(a)

Setting QD = QS;

500 - 10P = - 100 + 10P

20P = 600

P = 30

Q = 500 - 10 x 30 = 500 - 200 = 200

(b)

When QD = 0, P = 500/10 = 50

CS = area between demand curve & price = (1/2) x (50 - 30) x 200 = 100 x 20 = 2,000

When QS = 0, P = 100/10 = 10

PS = area between supply curve & price = (1/2) x (30 - 10) x 200 = 100 x 20 = 2,000

(c)

New supply function: QS = - 100 + 10 x (P - 10) = - 100 + 10P - 100 = - 200 + 10P

Setting QD = new QS,

500 - 10P = - 200 + 10P

20P = 700

P = 35 (price paid by buyers)

Price received by sellers = 35 - 10 = 25

Q = 500 - 10 x 35 = 500 - 350 = 150

New CS = (1/2) x (50 - 35) x 150 = 75 x 15 = 1125

Decrease in CS = 2,000 - 1,125 = 875

New PS = (1/2) x (25 - 10) x 150 = 75 x 15 = 1125

Decrease in PS = 2,000 - 1,125 = 875

(d)

New demand function: QD = 500 - 10(P + 10) = 500 - 10P - 100 = 400 - 10P

Setting new QD = original QS,

400 - 10P = - 100 + 10P

20P = 500

P = 25 (price received by sellers)

Price paid by buyers = 25 + 10 = 35

Q = 400 - 10 x 25 = 400 - 250 = 150

New CS = (1/2) x (50 - 35) x 150 = 75 x 15 = 1125

Decrease in CS = 2,000 - 1,125 = 875

New PS = (1/2) x (25 - 10) x 150 = 75 x 15 = 1125

Decrease in PS = 2,000 - 1,125 = 875

NOTE: As HOMEWORKLIB's Policy, only 1st 4 parts are answered.

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