Question

10. The market demand curve for a good X has two linear parts given by the following function (this is sometimes called a kinked demand curve): 120 - (1/4)X Os X s 120 P = 100 - (1/12)X 120 s X s 1200 where X is the number units purchased each month and P is measured in dollars. The short run supply curve for this good is given by: P-20+ X Р It is not possible to store this good; it must be used in the same month in which it is produced. The initial equilibrium in this market occurs when P* = $100 and X* = 80 units of the good. Now imagine that the government establishes a price ceiling of $80 for this good, and it is able to enforce this price ceiling so that no trades occur at any other price. When the market moves from an equilibrium price to the new price ceiling, by how much does consumer surplus change (i.e., increase[+] or decrease [- 1) in this market? A) -S1950 F) +$800 B)-S1150 G) +S950 C)-$950 H) +$1150 D) -5800 I) +$1950 E) SO J) none of the above

Answer 1

. P - 120 -Ix OS X5120 Demand 14 P=100 - 1 120 <x1200 p=2018 supply % P1 1.60.120) Asupply (P=20+x) 105 100 G Demand ( P = 120-4x) Price cenning Q (0,0) 60 go (480,0"

P=20+* supply At p= $80, the Eqweibrium Quawhity be P= $80, +80=20+ 41*260 Change in Consumer & Surplus Final value inihal Value of consumer of suples 여 consumer suplen. Area of a Region - Area of a triangle ABFD EFG =(Area of a triangle ) - Area of a tringle f Area of a of al EFG Rectangle ABCO £x (120-105)(60) 7-4x80x (120-100) + 60 x (105-80) = 450+ 1500 - 800 800 1150 Hence the change in the consumer surplus =$1 option H +$ 1150 i lorrect option