Question

Figure: Supply and Demand. Treat every question which references this figure as independent. Price (dollars) 201 - - lral - | X T-N -- - - TILLIT t iIIiDN Z-1-LLEIJ-1-l-LUJ-1-L - LLIT + - - IT-T- - I - +-+-+-+ ! 1 - - -- + = + - A - +-+ - + - + -- - - 1 - TT - T TT 1 1 1 1 TC17-T- - - - --- ---- 10 15 Quantity (thousands) 1. Refer to Figure: Supply and Demand. What is the equilibrium price of this good? Difficulty 1/3 a S9 b. S11 Page 1 / 5 d si a +

Answer 1

Solution 1: The equilibrium price of this good is (b) $11

Explanation: The intersection of demand and supply curve (D and S) gives the equilibrium price and equilibrium quantity. In this case equilibrium price is $11 and equilibrium quantity is 12 thousand units.

Solution 2: Question Not visible

Solution 3: If a tax of $7 is imposed on this good, the deadweight loss is (a) $21,000

Explanation: The area of triangle ACE gives the deadweight loss.

Area of triangle ACE= area of triangle ABE + area of triangle BCE

Area of triangle ACE= 1/2*(12000-6000)*(14-11) + 1/2*(12000-6000)*(11-7)

Area of triangle ACE=9000+12000=$21,000

Solution 4: Total surplus in equilibrium is (d) $84,000

Explanation: Total surplus is given by Consumer surplus + Producer surplus = area of triangle FHE

Area of triangle FHE= area of triangle FGE + area of triangle GHE

Area of triangle FHE= 1/2*(12000)*(17-11) + 1/2*(12000)(11-3)

Area of triangle FHE= 36000+48000=$84,000

Solution 5: Using the mid point method, the price elasticity of supply between $7 and $9 is (c) 1.6

Explanation: In mid point method, price elasticity of supply is given by:

(percentage change in quantity)/(percent change in price)

Percent change in quantity = [ (9-6)/((9+6)/2) ]*100= 40

Percent change in price = [ (9-7)/((9+7)/2) ]*100 =25

price elasticity of supply = 40/25 = 1.6