Question

PLEASE answer ALL questions

Answer All Questions (100 points) 1. Given the following diagrams: Q-20 bags. O2-15 bags. Os-27 bags. The market equilibrium price is $45 per bag. The price at point a is $85 per bag. The price at point c is $5 per bag. The price at point d is $55 per bag. The price at point e is $35 per bag. The price at point fis $59 per bag. The price at point g is $31 per bag. Apply the formula for the area of a triangle (Area ½ x Base x Height) to answer the following questions. Round your answers to 1 decimal place. Eficiency los from underproduction Efficiency loss from overproduction D D Quantity (bags) (6) 0 Quanty (bags) (a) a) What is the dollar value of the total surplus (producer surplus plus consumer surplus) when the allocatively efficient output level Q1 is being produced? b) How large is the dollar value of the consumer surplus at the output level Q1? What is the dollar value of the deadweight loss when output level Q2 is being produced? c) d) What is the total surplus when output level Q2 is being produced? e) What is the dollar value of the deadweight loss when output level Q3 is produced? What is the dollar value of the total surplus when output level Q3 is produced? ) (Beq ed) 34d (eq Jed) e3d

Answer 1

Ill Preu (pubag) 7 (fig A) पापड eq peine → ty ebongs) to - 5 lacket - Tbiu 45 E 31 pe - Solutioul (a) When level Q is being produced we have : Consumer Supley = 'an Alibab) = 1x base x height: 20 x 90= 400 - units Producu subley = ou? [cw b) = 1 x base x heraut = Ženy 1x40x20 400 wwilgo 2

1 Total suplus = Consumer suplus + Producu suples - 800 units :($) o, is 400$ as Consumer surplus at output level calculated in part (a.) ( When output Q is produced, we have Constances comptes as dok shaded to tigue ) اسداللطی یه Dead weight loss = ar a edb e enemb + ax Admb. i 1x mexbm + 1x mdx bm 2 (10x5 + 10x5)-50$ (4) Total surplus when Q₂ is being produced : Total suplus = Consumer suplus + Producu surplus + Gout top revenue. = ana dal + ar Acen tant (nedl)

Page No. Date / / / 1 x 15*30 + L x 30 x 15 + 20x15 2 = 450+300 Total suples = $750 e as gout is taxing an amount of de permita . (e) When Qg is produced, Deadweight loss is given by ana s bf g = an 'Abpf + as a bpg 21 x 14 x 7 tal x 14 x 7 [stuce, (45-31) = pg (59-45) = fp, (0-0) =7] ] Dead weight loss = $98/ Total suplus = Consumer & Producu subley - gubш - (Gout loss due to subsidies) 4 dee I Couruna sublus. an A gra as cousumer is I paying pucu=$31] Figl BT 21 x 27% (85–31 2 Ix 27 x 54 - $729 2 Producu suplus = ar Aef getting piu=$59||

1x (59-5) * 27 = I x 54 x 27 = $729 ( Producu suples) Gout loss to revenue due to subsidy - = au uc g får 69 x reg 28 x 2 Y = $756 Totul suples a = c.S. + P.S - Gout (loss) 729 +729 - 756 E $ 702 VO2 = -Initial demand (oy ) = 90 New demand (912) = 110 Aqu = 20 Initial price = $1.2 e bu)' New price (P2) = $0.80 Ab = (-)..40$ Own price elasticity : % change in % change in quantity price

P'age No. Date oi - Ag = (-) Ag Ap fl qi Δb PI E x = = 0.06 =(-) 20 -oyo 1.2 go 2:4 36 This means that the elastuity of demand for Tacos is quite inelastic in due to change in pucu of I Faces, there is no much change in gtiantity demanded. ie the responsiveness of demand to bile changes & low / insignifican't. Q.. Initial price €6, ) = 15 pod I New pelu (p2) = 10 | Initial perce (P.) = 12$ poud L New buiu (P₂) = 1891 pag t Pork Chicken initial price (pa) = 7 $ 1 pound 1 & Potatoes | New peilu (kb) = 4 $1 paud | Oun price elasticity of demand =6)% change in atu devoti % change in price Et sqfx-Bo (when prean aue initial prices'd quantities) for park

sq = 35-20 = ls Ap = b; b = -)5 ó. E = G) VS x 15.2 3 2:25 785 20 It means that the responsiveness of demand for Pack is much high / elastic to changes in puce levels ie a small change in price will lead to a significant change in quantity demanded Cuss price elasticity of chicken : 0 of demand for book wort puce % change in demand for Pock % charge in pece of chicken A Q Q. % chage in dewad & APC P. for Pack = (New aty - Old aty xloo Old aty. = (35-20) x 100 =(+) 75% % charge in chicken peice of = (New pia - Old pece xloo - Old bein (18-12) xloo 12 - (+) 500).

Page No. Date | E. - (+975. ) 0:15 PC Soy. This means that both goods are SUBSTITUTE Goods il due to rise en peice of chicken, there orcus a rise in atlantity demanded of Pour: But there are weak substitutes ine chicken Deward for - Pork (iii) Cross puc botato elasticity & Eppo of demand for pack wiat. = % in Qty demeaded for Pock to in fish of Potato = 75% las calculated in baut (ii)) Il chaar in demad O pock = in bulce fol Potato (New Puce - Old peice) xloo Old perce (4-7) y loo Z -3xloo 2 642.85%

Page No Date Eppo = (+75 = - 1075 OG 42.8 This means that both Pack & I complementary goods" ie with I peces of potatos , the demand Potatoes au the fall in for Pock rises, 1 These are STRONG complements ie ay price of Potato leads to greater f a in for Pak. in demand az د فيه سهلة جميلة و الميوله ليه صل dewad for pock . A in demand = at . Charge in income + 75% (as calculated . before) New Old = 300-250 Old y 250 1% A in income =

Page No. / Date This meaus that the dood te Pack i I a NORMAL good ie having a positive Il beice-income Glationship This meaus, with a rise in income of the buyen the quantity demanded of pook will rise positively,