Question

In: Economics

1. When demand and supply are linear, consumer surplus is equal to: Group of answer choices...

1. When demand and supply are linear, consumer surplus is equal to:

Group of answer choices

The area between the demand curve and the price, out to the quantity that is exchanged.

The area between the supply curve and the price, out to the quantity that is exchanged.

The entire area between the demand curve and the price.

The entire area between the supply curve and the price.

2. Which of the following is not an assumption underlying the supply and demand model?

Group of answer choices

The focus is on supply and demand in a single market.

All goods sold in the market are identical.

Different firms sell their goods at different prices

There are many producers and consumers in the market

3.

If the inverse demand curve is P = 12 – 2QD and the inverse supply curve is P = 4QS,
then the equilibrium price and quantity are:

Group of answer choices

Pe = 6; Qe = 1.

Pe = 8; Qe = 2.

Pe = 2; Qe = 8.

Pe = 1; Qe = 6.

4. If the demand curve is Qd = 10 – 2P, then the lowest price at which no consumer is
willing to buy the good (i.e., the demand choke price) is :

Group of answer choices

10

2

7

5

Solutions

Expert Solution

1. (a) The area between the demand curve and the price, out to the quantity that is exchanged.

Consumer surplus is the difference between what consumers are willing to pay and what they actually end up paying. Graphically, it is area under demand curve and above equilibrium price upto the equilibrium quantity.

2. (c) Different firms sell their goods at different prices.

3. (b) Pe = 8; Qe = 2

At equilibrium, Demand curve= Supply curve.

12 – 2QD = 4QS

12= 6 Q (Since Qd= Qs)

2= Qe

Putting Qe= 2 in Price equation, we get P= 4x2= 8

Thus Pe=8.

4. (d) 5

Choke price is an economic term used to describe the lowest price at which the quantity demanded of a good is equal to zero. At any price below the choke price, consumers will demand some quantity of the good.

Qd= 10- 2P

2P= 10 - Qd

P=5 - Qd/2

Substitute Qd=0 since no quantity is demanded at choke price. Any price higher than that and demand will be completely “choked off.” Thus P=5.

Rahul Sunny answered 2 years ago
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