Question

Q3: 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. If Fulton has to figure out how you arrived at your answer, marks will be deducted.

Answer 1

Calculation of consumer surplus after price control and Dead weight loss

Consumer surplus will increase after price control.