In a competitive market the demand curve is given by Q = 1600 –4P and supply...
In a competitive market the demand curve is given by Q = 1600 –4P and supply by Q = 4P. What is the total surplus (TS) in the market equilibrium?
a) TS = 80,000
b) TS = 1,600
c) TS = 0
d) TS = 160,000
e) none of the above.
Homework Answers
Qd = 1600- 4P
When P=0 , Q=1600
When Q=0 , P=400
Qs = 4P
When Q=0 , P=0
At equilibrium : Qd = Qs
1600-4P = 4P
1600= 8P
P= $200 (Equilibrium price)
Q = 4P= 4(200)= 800 units (Equilibrium quantity)
Consumer surplus = (1/2)(400-200)(800)= $80000
Producer surplus = (1/2)(200-0)(800)= $80000
Total surplus = CS+PS = $(80000+80000)= $160,000.
Hence, option(D) is correct.
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