Question

Consumer & Producer Surplus If QP = 450 - P and Q* = 2P - 150: a. Solve for the market equilibrium price (P) and market equilibrium quantity (Q*). (4 points) b. Solve for consumer surplus, producer surplus and total surplus. (4 points) 2. Welfare Effects of a Per Unit Tax Given the same demand and supply equations as in question #1, suppose the government imposes a per unit tax of $15: 22 a. Solve for the new equilibrium quantity (Q**), the sellers price (P), and the consumer's price (P**). (3 points) Solve for consumer surplus, producer surplus, government revenue and total surplus with the tax. (4 points) Solve for the change in consumer surplus, the change in producer surplus, the change in government revenue and change in total surplus (i.e. the deadweight loss) from the market without the tax (see your answers in question #1). (4 points) cu Welfare Effects of a Tariff Given the same demand and supply equations as in question #1, suppose the free trade (world) price is $100. Solve for the amount imported, consumer surplus, and producer surplus. (3 points) Suppose a per unit tariff of $20 is imposed by the government, solve for the consumer surplus, producer surplus, government revenue and total surplus with the tariff. (4 points) Solve for the change in consumer surplus, the change in producer surplus, the change in government revenue and change in total surplus (i.e. the deadweight loss) from the free trade case (without the tariff). To do this, make the calculations using your answers in 3a, and calculate total surplus under free trade). (4 points)

Answer 1

1. Market equilibrium occurs at the point where quantity demanded equals quantity supplied.

Consumers surplus is the area below the demand curve and above the market price. Producers surplus is the area below the market price and above the supply curve.

P = 450-60 / inverose Demand 1. Demand : QP = 450-P Supply : Q5 = 2P-150 > 2 P = Q3 + 150 P = 0.5 Q3 +75 inverse supply a) At equilibrium, QPQS 7 450-P = 2P-150 => 3P=60o → p*= 200 At this price from any of demand or supply equation we get, QP = QS = 250. i p*= $200 and Qt - 250 units. by b out price 450 - supply cus 200 I.P.S 15 Demand. Quantity 250 2.S = { x 250 * (450 - 200) = # 31,250 Pos = 2 x 250 × (200-75) = $15, 625 Total sumpws = cost P.S = $(31 250 + 15 625) = $ $ 46,875