Question

1- The inverse demand for the Tesla electric automobile is Qd = 100,000 - 0.5P, where P is in S/car and is the number of cars sold per year. Currently, the U.S. government offers incentives to buyers of electric vehicles worth $5000. If the current selling price of the Tesla is $75,000, what is consumer surplus when the subsidy is available? What will be the change in consumer surplus after the incentive has expired? (Hint: draw the demand curve)

Answer 1

automobile w The inverse demand for the tesla electric ess Qd = 100,000 - O. sp Now, when p=0 =) Qd = 180,000 When Qea o =) 100, or -0. S p = 0 = 100.000 = 0,5p =) po 200,000 - Now current selling price of Tesla is $75,000 Now, Quantity of can at price $75,000 will bey Ods 100,0vo - (0.5 * 75,600) = 62.500 mits Now, currently, Uis govnnment oftens incentivces to buyns of electric vehicles worth $500. This Now Pure paid by buyers will bet t o (75,000- Sooo) - $70,000 Now quantity demanded at Pile of $70,000 will be Ods 100, 600 (0.5 * 700m) = 65000 mits. Now we can draw the demand cauc. Scanned with CamScanner

a Price 200,000 200, TA 75,000 B 70,000 D oj Dmand * 62500 6500 —24-84 100,000 of Now, when the subsidy is available, consues suples is crea below the demand cure and above the price lence p= 70,000 i.e. area of A ADE IX base x height i ķx (65,000-0) x (200.000 - 70,000) - sť 4, 225,000,000 Now, afth the incentivc i expired, consues simples willha am Area of A ABC CS Scanned with = { x (62 500-o) X (200, 00-7500) CamScanner = $ 3,906, 250, ovo

consuun suples will Hmce, at der the incentive has enpiced, fall by / 4,225,000,000 - 3,906, 2250, 60) f 318, 750,000 CS Scanners CamScanner