Question

6.3 In a competitive market, the market demand curve is Q = 28 - 2p and the market supply curve is 19 If you do not see the Solver tool, you need to load it first. Look up Solver in the Excel help facility for instructions. Qs = -8 + 2p. Use a spreadsheet to answer the following questions.

a. Determine the quantity demanded and quantity supplied for p = $4, 5, 6, …, 14. Determine the equilibrium quantity and price.

b. For prices p = $4, 5, 6, …, 14, determine the consumer surplus. How does an increase in price affect the consumer surplus?

c. For prices p = $4, 5, 6, …, 14, determine the producer surplus. How does an increase in price affect the producer surplus?

d. Suppose the government limits the quantity traded in the market to 6 units. Calculate the resulting deadweight loss.

PLEASE SHOW ANSWERS AND FORMULAS IN EXCEL

Perloff, Jeffrey M.. Managerial Economics and Strategy (p. 265). Pearson Education. Kindle Edition.

Answer 1

answers:
a. Determine the quantity demanded and quantity supplied for p = $4, 5, 6, …, 14. Determine the equilibrium quantity and price.
quantity demanded=28-2P			quantity supplied=-8+2p
quantity demanded when price is	quantity demanded		quantity supplied when price is	quantity supplied
4	20		4	0
5	18		5	2
6	16		6	4
7	14		7	6
8	12		8	8
9	10		9	10
10	8		10	12
11	6		11	14
12	4		12	16
13	2		13	18
14	0		14	20
equillibrium quantity= 10
equillibrium price= 9
b. For prices p = $4, 5, 6, …, 14, determine the consumer surplus. How does an increase in price affect the consumer surplus?
consumer surplus=consumer's willingness to pay - consumer actual pay
price	willingness to pay	actual pay	consumer surplus
4	10	4	6
5	10	5	5
6	10	6	4
7	10	7	3
8	10	8	2
9	10	9	1
10	10	10	0
11	10	11	-1
12	10	12	-2
13	10	13	-3
14	10	14	-4
As price increases the consumer surplus decreases.
c. For prices p = $4, 5, 6, …, 14, determine the producer surplus. How does an increase in price affect the producer surplus?
producer surplus=amount received by sellers-cost to sellers
price	amount received by sellers	cost to sellers	producer surplus
4	4	10	-6
5	5	10	-5
6	6	10	-4
7	7	10	-3
8	8	10	-2
9	9	10	-1
10	10	10	0
11	11	10	1
12	12	10	2
13	13	10	3
14	14	10	4
As price increases the producer surplus increases.
d. Suppose the government limits the quantity traded in the market to 6 units. Calculate the resulting deadweight loss.
dead weight loss when quantity is limited to 6 units:
here the equillibrium price is $ 9, at this price level quntity demanded is 10 units but only 6 units are sold so 4 units are sold less.
simillarly at this price level quatity supplied is also 10 units but only 6 units are supplied so 4 units are remained unsold.
so, the deadweight loss is 4 units (from consumer's side) + 4 units (from producers side)=8 units.