Question

Imagine that you have been given a job as an economic advisor to evaluate a certain competitive US manufacturing industry. Your (accurate) statistical analysis indicates the market is characterized by demand of Q_d = 200 - P and supply of Q_s = P - 20.

• Solve for equilibrium price P* and quantity Q*.
• Depict the supply and demand curves on the usual P, Q diagram. Label all intercepts. Clearly indicate and label the market equilibrium.
• Graphically indicate the areas of Consumer Surplus (CS) and Producer Surplus (PS).
• Compute the values of Consumer Surplus (CS) and Producer Surplus (PS).

Answer 1

Answer)

Id = 200-P ds - P-20 At equilibrium Odds 200-P - P-20 2P = 220 Gam Price P = |lo Em Quantity Q = P - 20 = 110-20=90 20 1807 160 140 cs ---- Bo Ps --- + I 20 40 60 80 100 120 140 HO Consumer Surplus is the area above the price line below the Demand curve. Producer Surplus is the area below the Priue line above the supply Curve cs = PS = 0.5x90x90 = 0.5x90x90 = 4050 4050

If you have any doubts, please comment...