Question

Assume that the supply and demand equations for beer in Canada are:

QD = 60 – 6P

QS = 4P – 20

a. Graph the demand and supply equations.

b. Calculate the equilibrium price and quantity.

c. Label the consumer surplus and producer surplus at the equilibrium.

d. Calculate consumer surplus, producer surplus and total surplus at the equilibrium.

e. Now suppose a price floor of $9 is implemented. Calculate the shortage/surplus that occurs at this price.

f. Label the new consumer surplus and producer surplus at the price floor.

g. Label the deadweight loss that results from the price floor.

h. Calculate consumer surplus, producer surplus, total surplus and the deadweight loss under the price floor.

i. How does deadweight loss relate to the total surplus at the market equilibrium and total surplus under the price floor?

Answer 1

Note: Post four subparts at a time.