Consider a market where demand is given by P = 60 - ⅓ Qd and supply...

Consider a market where demand is given by P = 60 - ⅓ Qd and supply is given by P = 20 + ⅓ Qs. Consumer Surplus is ________ amd Producer Surplus is?

Solutions

Expert Solution

P = 60 - (1/3) Qd Demand equation

When Qd=0, Pm= 60

P = 20 + (1/3) Qs Suppy equation

When Qs=0, Ps= 20

Equilibrium arises where:

Demand = Supply

60-(1/3)Q=20+(1/3)Q

(2/3)Q = 40

Q*= 120/2= 60

P*= 60-(1/3)Q*= 60-20= 40

Producer surplus= (1/2)(P*-Ps)(Q*)= (1/2)(40-20)(60)= 20 x 30= 600

Consumer surplus= (1/2)(Pm-P*)(Q*)= (1/2)(60-40)(60)= 20 x 30= 600

Rahul Sunny answered 1 year ago

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