Question

: A market is represented by Q = 640 – 5P and Q = 3P – 216 where Q is the quantity of the product measured in tonnes and P is the price of the product measured in dollars/tonne. Graphs are useful for the following questions.

                                                                                                                  

a) What does the supply value of the 33^rd tonne of the product in this market equal? Show clearly how you arrived at your answer. If Fulton has to figure out how you arrived at your answer, marks will be deducted. 1 mark.

b) Explain what the supply value of the 33^rd tonne of the product means AND indicate one (and only one) specific variable that affects the supply value. 2 marks.

c) What does the producer surplus in this market equal when the market is at equilibrium? Show clearly how you arrived at your answer. If Fulton has to figure out how you arrived at your answer, marks will be deducted. 3 marks.

d) What does consumer surplus in this market equal if the government imposes an effective price control at $92/tonne? Show clearly how you arrived at your answer. If Fulton has to figure out how you arrived at your answer, marks will be deducted.

3 marks.

e) What does the deadweight loss in this market equal if the government imposes an effective price control at $92/tonne? Show clearly how you arrived at your answer.

Answer 1

Consumer surplus is the area below demand curve and above price level whereas producer surplus is the area below market price and above supply curve.