In: Economics
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?
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