Question

The next 3 questions involve the following supply and demand equations Supply: q(1/4)P Demand: q 6- (1/2)p 16. What is the market equilibrium?2 (A) p 8, q2 (B) p 2, q8 (C) p 1/5, q = 9 (D) p 8, q = 1/5 17. The government enacts a price floor of $10. What is the surplus? (A) 2.5 (В) 1.5. (C) 3.5 (D) None of the above 18. What is the Deadweight Loss under a price floor of $10? (A) $2 (B) $3. (C) $6. (D) None of the above.

Answer 1

Problem 16

Supply, q=(1/4)p

Demand=q=6-(1/2)p

In equilibrium, quantity demanded=quantity supplied

6-(1/2)p=(1/4)p

(3/4)p=6

p*=(6*4)/3=$8

Quantity demanded=6-(1/2)*p=6-(1/2)*8=2

Quantity supplied=1/4p=1/4*8=2

Equilibrium quantity=q*=2

Correct option is

A p*=$8 and q*=2

Problem 17

At a price floor of $10

Quantity demanded=6-(1/2)*p=6-(1/2)*10=1

Quantity supplied=1/4p=1/4*10=2.50

Surplus=Estimated quantity supplied-Estimated quantity demanded=2.50-1=1.50

Correct Option is

B 1.5

Problem 19

P	qs=1/4p	qd=6-(1/2)p
0	0	6
1	0.25	5.5
2	0.5	5
3	0.75	4.5
4	1	4
5	1.25	3.5
6	1.5	3
7	1.75	2.5
8	2	2
9	2.25	1.5
10	2.5	1
12	3	0

as d 1 1 2 3 4 5 6 7

Dead weight loss=Area of triangular area=1/2*(2-1)*(10-4)=$3

Correct Option is

B. $3