Question

1. Use the following supply and demand equations. Supply: p = 4 + 3q. Demand: p=2,132-9. Use these equations to respond to the following questions. (a) What is the market equilibrium? (4%) (b) Under the market equilibrium, what is Total Surplus? (4%) (c) Suppose the government enacts a price ceiling of p= 2, 000. What is Producer Surplus, Consumer Surplus, Total Surplus, and Deadweight Loss? (4%) (d) Instead, suppose that the government enacts a price ceiling of p = 1,100. What is Producer Surplus, Consumer Surplus, Total Surplus, and Deadweight Loss? (4%) (e) Under a price ceiling of pº= 2,000, what is the Shortage? What if p = 1, 100? (4%)

Answer 1

At SS: DD: P = 4+39. p=2132-q ters (Q/ a At the market equilibrium: SS = DD. 4+39 = 2132-q. a 39 + 9 = 2132-4 49 - 2128 q= 532 (6) Consumer sur thus = ar CODPE) P= 4+ 3x532= $1600 (as) = 1.532 × 532 = $141512 2132 Producer Surplus = ar LOPES) 1766 2000 E → Deadweight x5321596 brice 1600 - = 424,536-41 Total surples- cs+PS = $566,048. 48 is a t - - - (9 O price cei above the brice lenel equilibrium is not • 365.33 532 clues to binding and it will not have any impact. d At P= 1100 - 110o = 4+ 3q. q=2432 Hoo= q=365.33 units TE At q = 365.33, pa a 2132-365.33 = 1766.67 This cs= ar CODEF) + are (EFGH) z Lx 365.33 X 365.33t 365.33 X 666.67 = 66733 + 243554.55 $ 310,287.55 Ps- arohas) = (x 365.33X1096= $200,200.84. Dead weight loss - LX 666.67X 166.67= $55,556.94 e No Shortage when p= $2000. At = $1100 shortage - OP - Qs = 1032 - 365.33 = 666.67.