Homework Answers
2.3 a) Equilibrium condition; Demand = Supply
- 10q + 2000 = 5q + 200
15q = 1800
q = 120
P = 5(120) + 200 = 800
b) C.S = 1/2 x (2000 - 800) x 120 = 72000
P.S = 1/2 x (1800 - 200) x 120 = 36,000
Producer revenue = PQ = 120 x 800 = 96,000
Global surplus = C.S + P.S = 108,000
2.4 Maximum price means price ceiling while minimum price means price floor.
Under price floor, there is excess supply of good because floor is set above equilibrium price of market.
Under price ceiling, there is excess demand of good because ceiling is set below equilibrium price of market.
Sales tax increases the cost of firm and thus supply of good decreases which shifts supply curve leftwards and causing dead-weight loss.
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