Suppose the market demand for a commodity is given by the download sloping linear demand function:...

Suppose the market demand for a commodity is given by the download sloping linear demand function:

P(Q) = 3000 - 6Q

where P is a price and Q is quantity. Furthermore, suppose the market supply curve is given by the equation:

P(Q) = 4Q

a) Calculate the equilibrium price, quantity, consumer surplus and producer surplus.

b) Given the equilibrium price calculated above (say's P*), suppose the government imposes a price floor given by P' > P*. Pick any such P' and compute the resulting consumer surplus, producer surplus and resulting dead-weight loss. (For example, if you calculated P* = 100 then pick any P' > 100 such as P' = 120 and compute the resulting consumer surplus, producer surplus and dead-weight loss.)

C) now, suppose instead, the government imposes a price ceiling given by P" < P*. Pick any such P" and compute the resulting consumer surplus, producer surplus and resulting dead-weight loss.

Solutions

Expert Solution

Consumer surplus is the area below demand curve and above market price. On the other hand, producer surplus is the area below market equilibrium price and above supply curve.

Rahul Sunny answered 10 months ago

Next > < Previous

Related Solutions

Suppose that the market for flu shots has downward sloping demand and upward sloping supply and...

Suppose that the market for flu shots has downward sloping demand and upward sloping supply and that flu shots yield a positive consumption externality of $5 per shot. Show graphically how the private optimum may differ from the social optimum and indicate the deadweight loss. Additionally, show graphically how a subsidy for flu shots can achieve the social optimum.

Market demand and supply for a commodity are given by the following equations: Demand: X =...

Market demand and supply for a commodity are given by the following equations: Demand: X = 30 – (1/3) P Supply: X = -2.5 + (1/2) P where X= quantity (units), and P=price per unit ($) Suppose that the government is planning to impose a tax on this commodity and considering the following two options: Option 1: A unit tax of $15 Option 2: An ad valorem tax of 20% a) Find the tax incidence on buyers and producers, and...

Suppose the demand is a typical downward sloping linear curve and the supply curve is perfectly...

Suppose the demand is a typical downward sloping linear curve and the supply curve is perfectly price elastic. If 3 million tickets are currently sold at a price of $5, approximately how much tax revenue could the government generate from a $1 per unit tax on sellers? The arc-price elasticity of demand between P=$5 and the new equilibrium price is -1.0 (Note: dQ = Change in Q and dP=Change in P) i. Draw a completely labeled D&S graph to show...

1. Market demand and supply for a commodity are given by the following equations: Demand: X...

1. Market demand and supply for a commodity are given by the following equations: Demand: X = 30 – (1/3) P Supply: X = -2.5 + (1/2) P where X= quantity (units), and P=price per unit ($) Suppose that the government is planning to impose a tax on this commodity and considering the following two options: Option 1: A unit tax of $15 Option 2: An ad valorem tax of 20% a) Find the tax incidence on buyers and producers,...

The inverse demand function of specific commodity is given by ??(??) = ?20?? + 1400, where...

The inverse demand function of specific commodity is given by ??(??) = ?20?? + 1400, where ?? and ?? are the price and quantity of the commodity, respectively. a- Determine the maximum consumption. b- If the price is $500 per unit, calculate consumption, consumers’ gross surplus, consumers’ net surplus, and the revenue collected by the producers. c- If the price increases 40%, calculate change in demand and lost surplus for the consumers. d- What is the consumers’ elasticity? Is it...

If the demand for labor is reflected in a downward sloping linear demand curve, then successive...

If the demand for labor is reflected in a downward sloping linear demand curve, then successive increases in any binding minimum wage (that is, for example, a binding minimum wage increases from $10.10/hr to $12.10/hr and then from $12.10/hr to $14.10/hr), will result in Multiple Choice no job losses since the demand for labor, particularly unskilled labor, is highly price inelastic. increasing (as a percentage) job losses, and decreasing total income (or reduced rates of income growth) paid to...

There are 5,000 identical individuals in themarket for commodity X, each with demand function given by...

There are 5,000 identical individuals in themarket for commodity X, each with demand function given by Qd=6-Px, and 1,000 identical suppliers of commodity X, each with function given by Qs=10Px.a)Find the market demandfunction and market supply function for commodity X.b)Construct the market demand and the market supply schedule of commodity X and from them, find the equilibrium price and equilibrium quantity. (Note: use Px=0-6)c)On one set of axes, plot the market demand curve and the market supply curve for commodity...

1. Given: Suppose you are given the following market demand function for electric cars: QD = ...

1. Given: Suppose you are given the following market demand function for electric cars: QD = I − P where P is the price per unit of electric cars and I is consumer income. And given the market supply function for electric cars: QS = 4*P − 10*w where P is the price per unit of electric cars, w is the hourly wage rate the firm pays to workers. Suppose, as a baseline, I = 50000 and w = 500....

The demand curve for a good is given by the linear function Qd = 60 -...

The demand curve for a good is given by the linear function Qd = 60 - P, where P is the price buyers pay for the good and Qd is the quantity of the good demanded. The supply curve for the good is given by the linear function Qs = 2P, where P is the price sellers receive for the good and Qs is the quantity of the good supplied. If a tax of $12 per unit is levied on...

Suppose that in the market for widgets, the supply curve is the typical upward-sloping line, and the demand curve is the typical downward-sloping line.

Suppose that in the market for widgets, the supply curve is the typical upward-sloping line, and the demand curve is the typical downward-sloping line. A tax of $4.80 per unit is imposed on widgets and the price rises by $3.25. The equilibrium quantity before the tax imposition was 400,000 widgets and the equilibrium quantity after the tax is 364,000 widgets. The deadweight loss from the tax isSelect one:A. more than $74,150 but less than $76,600 B. more than $76,600 but less...

Subjects