Question

In: Economics

Consider the market for wheat where demand is given​ by: Qd=120-4p and supply is given​ by:...

Consider the market for wheat where demand is given​ by: Qd=120-4p

and supply is given​ by: Qs=50 + 2p.

Now suppose​ that, due to a market failure​ (an artificial shipping​ constraint), a maximum of 63.32 units of wheat can be supplied by firms in the market.

​The amount of the deadweight loss caused by the market failure is ​$__________________.

Solutions

Expert Solution

As per the question the market demand for wheat is Qd = 120 – 4P

The market supply for wheat is Qs = 50 + 2P

At the market equilibrium point the market demand is equal with market supply

Qd = Qs

120 – 4P = 50 + 2P

120 – 50 = 2P + 4P

70 = 6P

P = 70/6 = $11.67 (equilibrium price)

At this price the equilibrium quantity demanded = 120 -4P

= 120 – 4(11.67) = 73.32

The market equilibrium price P=$11.67 and quantity is 73.32

Due to market failure the quantity of wheat supplied by the market is 63.32

At this quantity the price received by supplier Qs = 50 +2P

63.32 = 50 + 2P

2P = 13.32

P = $6.66

At this quantity the price pay by buyer Qd = 120 – 4P

63.32 = 120 – 4P

4P = 56.68

P = $14.17

So P1 = $14.17   and     P2 = $6.66

Q1 = 73.32        and    Q2=63.32

Deadweight loss is the loss of economic welfare caused due to market failure.

The deadweight loss = 0.5x(P1-P2)x(Q1-Q2)

The deadweight loss = 0.5x(14.17 – 6.66)x(73.32-63.32)

The deadweight loss = 0.5x(7.51)x(10) =37.55

The amount of deadweight loss caused due to market failure is 37.55

Rahul Sunny answered 8 months ago
Next > < Previous

Related Solutions

The demand and supply for a product is given by: Qd: 120-4P and Qs: 2P+60 Suppose...
The demand and supply for a product is given by: Qd: 120-4P and Qs: 2P+60 Suppose the government imposes a price ceiling of P=$8 calculate: 1) consumer surplus after the price ceiling 2) Producer surplus after the price ceiling 3) Deadweight Loss
Market supply is given as Qd=200-pMarket demand is given as Os = 4P a . a...
Market supply is given as Qd=200-pMarket demand is given as Os = 4P a . a Calculate equilibrium price and quantity If an excise tax of $ 4 per unit is imposed on sellers , calculate the price consumers pay Pc and the price sellers receive Ps . C. Also , calculate the dead weight loss and consumer surplus after the tax .
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?
Consider a market where demand is given by P = 50 - Qd and supply is...
Consider a market where demand is given by P = 50 - Qd and supply is given by P = 10 + Qs. After a tax of t = 4 is placed on producers Producer surplus is between 180 and 200 Producer surplus is between 220 and 240 Producer surplus is between 160 and 180 Producer surplus is between 200 and 220
In the market for used cars, the demand and supply equations are given by QD=12,000 -.4P...
In the market for used cars, the demand and supply equations are given by QD=12,000 -.4P and QS=.1P+5000, where P is the price per car and Q measures the quantity of cars. What is the size of the deadweight loss at a price floor of $15,000?
Consider a perfectly competitive market with demand and supply Qd = 3360 – 4P and Qs...
Consider a perfectly competitive market with demand and supply Qd = 3360 – 4P and Qs = -240+6P a . Find the equilibrium price and quantity in the market. b. Now suppose we impose a tax of $20 per unit on the supplier. What is the new supply curve, including the tax? c. What are the new equilibrium price and quantity in the market with the tax? d. How much of the tax incidence falls on the consumers in the...
Supply and Demand for an imported good are given by QD = 30 – 4P and...
Supply and Demand for an imported good are given by QD = 30 – 4P and QS = 6 + 2P. Currently Canada allows free trade at a world price of $2. a. Trade disputes lead the Canadian government to implement an import quota at Q = 6 units for this good. Provide a labelled diagram and calculate how introducing an import quota will affect consumer, producer and licensee surplus in the economy. Label the deadweight (efficiency) loss. b. Clearly...
1. Consider a perfectly competitive market where the demand and supply curves are given by QD...
1. Consider a perfectly competitive market where the demand and supply curves are given by QD = 500 − P and QS = −100 + 2P , respectively. Suppose that the government decides to tax the producers by $60 per unit sold. (a) Determine the pre-tax and after-tax equilibrium price and quantity. (b) Determine the loss in net benefits due to the tax. (c)Determine the percentage of the tax burden that falls on the consumers.
Suppose that the market demand and supply for milk is given by Qd =120−6P and Qs...
Suppose that the market demand and supply for milk is given by Qd =120−6P and Qs = 12P − 60 a. Find the market equilibrium quantity, and the equilibrium price. (5 points) b. Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus (or shortage) if a price floor of $8 is imposed in this market. (5 points) c. Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus (or shortage) if a price...
Consider the following market. Demand is given by QD = 5 − P where QD is...
Consider the following market. Demand is given by QD = 5 − P where QD is the quantity demand and P is the price. Supply is given by QS = P/2 where QS is the quantity supplied. a. What is the market equilibrium quantity and price? b. Calculate consumer, producer, and total surplus. Depict your answer in a graph. c. Suppose the government imposes a price floor of P = 4. Calculate the consumer surplus, producer surplus, and deadweight loss....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT