Question

Q2- Economists estimate that the supply function and demand function for the widget market is given by the following expressions: q = 0.2 · π − 40 π = −10q + 2000 π = 5q + 200 Draw demand and supply curves as a function of q and calculate;

A- the demand and price at the market equilibrium.
B- For this equilibrium, calculate the consumers’ gross surplus, the consumers’ net surplus, the producers’ revenue, the producers’ profit and the global welfare

Answer 1

A) In this question given that

q = 0.2 π − 40

π = −10q + 2000

π = 5q + 200

Demand equation

at market equilibrium

Supply equation= supply equation

5q+200=-10q+2000

5q+10q+200-2000

q=120 unit that is demand at equilibrium

When we put the value of q in the demand equation we get

π = −10q+ 2000

π = -10*120+ 2000=-1200+2000= 800$ = price at market equilibrium

Consumer Surplus is the difference between the price that consumers pay and the price that they are willing to pay. On a supply and demand curve, it is the area between the equilibrium price and the demand curve