Question

solve a and b

showing work on how to calculate

Free Response Questions Please round all numerical answers to the nearest four decimal places. Suppose the me OF=3P - 15 (a) Determine the ii. BQ,P) = iii. CIQ,P) = iv. EQ,P) = he market for X has a demand function of OR = 50 – 2P and a supply function 3p - 15, where P is the price of Good X. rmine the relevant price and quantity at each labeled point in the graph below . AQ,P) = (1 point) (1 point) (1 point) (1 point) v. F(Q,P) = (1 point) vi. GQ,P) = (1 point) Suppose the current price is $16. Compute the consumer surplus (CS), producer surplus (PS) and the deadweight loss (DWL). i. CS= (1 point) ii. PS= (1 point) iii. DWL=_ (1 point) S ba

Answer 1

a) Demand is Q = 50 - 2P

Supply is Q = 3P - 15

A) Now we have A (vertical intercept of demand curve) where Q is 0. Hence 50 - 2P = 0 or P = 25. This gives A = (0, 25)

B) Here we have B (vertical intercept of supply curve) where Q is 0. Hence 3P - 15 = 0 or P = 5. This gives B = (0, 5)

C) we have C (horizontal intercept of demand curve) where P is 0. Hence Q = 50. This gives C = (50, 0)

D) C and D both reflect the same coordinate.

E) It is the equilibrium so that Qd = Qs. This gives 50 - 2P = 3P - 15 or P = 65/5 = $13. Q = 3*13 - 15 = 24. Hence E = (24, 13)

F) Price is 16. At this price quantity demanded is Q = 50 - 2*16 = 18. Hence F = (18, 16)

G) G lies on supply with quantity 18 units. Hence price is (18 + 15)/3 = 11. Thus G = (18, 11)

b) Current price is 16 while equilibrium price is 13. Hence there is a price floor.

At P = 16, quantity sold is 18 units

CS = 0.5*(A - 16)*18

= 0.5*(25 - 16)*18 = $81

PS = 0.5*(16 - B + 16 - G)*18

= 0.5*(16 - 5 + 16 - 11)*18 = 144

DWL = 0.5*(F - G)*(24 - 18)

= 0.5*(16 - 11)*6

= $15