Question

IMPORTANT: I know that I have a problem walkthrough and answers below, but there's a lot I don't get. Please help me with this.
a)  1. I see how they got the price elasticity of demand and how they got the equilibrium price AND quantity. However, I don't see how they got the elasticity of demand AT the equilibrium and quantity. Am I looking too much at the word usage or does the "AND" and "AT" make a difference? If so please help me understand how this is the correct answer?

b) 1. How can you know if the DWL is on the right side or left side? I understand how he calculated it, but I don't understand how he knew it was on the right. Please help me understand.

b) 2. I don't understand how he found the change in consumer surplus. I get how he added the points he did on the graph. However, I don't get how what he did from there gave him the change in consumer surplus. I'm also not even sure where specifically on the graph is supposed to represent the change in consumer surplus. Please help me understand these things.

Q 12-2P and Q = 2P 4. Suppose the following in a competitive market for corn: (a) Calculate the the elasticity of demand (Ep)at the equilibrium price and quantity vww. (10 points) (b) If the government were to introduce a price subsidy of $2 for each unit of corn produced (paid to the producers), how much dead weight loss would this create and what would be the change in consumer surplus? (10 points) P 3 2 PD (2-2P- 2P 12-2 P- 2R puL-2)(8-6) p 3 Acs68) (4) 1/2 CSE Ps=L

Answer 1

a) Elasticity of demand is -2*(P/Q)

To find elasticity of demand at equilibrium, you just have to put the values of equilibrium quantity and equilibrium price into it.

Equilibrium quantity=6

Equilibrium price=3

So, elasticity at equilibrium = -2*(3/6) = -1

Therefore, elasticity of demand at equilibrium = -1.

b) It is not about which side(left or right).

Look at it this way,

After the subsidy, 8 units are traded in the market. Consumers' price is $2 and producers' price is $4.

Government pays out a subsidy of $2 on each unit traded. So, the total subsidy paid out by government is $16. (=$2*8)

But the area of the triangle is the part which doesn't accrue to anyone. (Neither producers nor consumers get it).

The area of the triangle is the amount lost due to distortion created by subsidy. That's why it's the dead weight loss.

S₂ - Supply curve post subsidy

AD Pa 2 12 Post Subsidy Govemment y outa to tal of $16 in sulgtdh combned aa AtB+C That is th D+E oned duce paut that y getna ny the ut that is A+D CSngumes BtE Methe amyhody Theu foe c w boen't accane t DEod welght s $2 affel Su oly Price aid hy Congumels was , the aus alove mre uy to Behoe Subrdy the Censunme anla below demamd cerre amd puomtt beneen demond cune euililm that u That is A Ond eween 920 md benreen p6md b3 G 6 hat u (K+A) ana

is $2 omd Lonsummer S oow, price paid by Dost Qhomtt iy is the consume Suply demomd aume cmd alo ve price the So1 aua below bounded y -o PAnd omd eutlium Quom P 6 amd p-2 omd 8 aug Lehveen Q=O rehilly deaty Suplus gared y That qraph See Hhe addihonal (BE) Addi tronal Consume Supls (B+E) consmers the auar Area of BTE = (3-2) (6-0) t 2(8-6) aureon Lmsume Supluy 7 Tnc Addihonal Ne Com Wo Smilasly out preduce Suqpls Loan duces uplus Pre subeidy Amea adatzetho DACE andbelo re below the Price and a bove He Arca s 2aost quontty 6 Ptce 3 cusne P3 and P=0 Area boumde d by Suk (1+e) KAP Thad u tue ala NN

pest Susidy Price of Produces Dumt t $4 PYDduce Supluy Auea above &ppy cune and He pice below bounded by g amd post husidy nded Quomhty o1:: +B+E That ana etew -pply above cune onal between Ond Pro omd py dtoT e) Q-o amd Q E) (LtB+A +0) That s aula S, the Produres SpluCAt0) inuuase (4-3) (6) +4-3) (8-6) drea of (h0= 6 - Increase in preduce) Suplu TOSuplus gal med by Lombned due to Subeidy Concumus amd producs L$+ L$ - $14 16 Tota uleely ped d by opveunm= $2. 16- 14 JOpl DWL the raph tre aua We cam Yelty B+E Suduy gained by Consumes A+D A BHC+0tE paud out byremment Subsidy (AHD)(BtE) = C A BtC+D+E Dwl

calculat C m the Ne can ot C8-6) (-2) 2. .2tbo $ 3 2 Dead wetght loss l Area of the triamgle C paut of 13 the palol by the govemmnt wWch melthe omoumt producuy orgurmes S . aearued Deod wetght lo That s why itls 929320 wnt