Question

(Please use the same equations from question 1 for all 3 equations)

1) Suppose we have a supply curve with the equation y = x+1 and a demand curve with the equation y = -x+9. Using these two equation calculate the following and explain what these each mean: a) Market Equilibrium b) Consumer Surplus c) Producer Surplus

2) Suppose, due to a negative externality, that a quantity restriction has been placed on this market that restriction only 2 units of the product to be consumed/produced. Using the same supply/demand equations calculate the following: a) Change in Consumer Surplus b) Change in Producer Surplus c) Dead Weight Loss

3) Suppose now that a price ceiling allowing the product to be bought and sold at only $3/unit. Calculate the following a) Change in Consumer Surplus b) Change in Producer Surplus c) Dead Weight

PLEASE ANSWER ALL QUESTIONS

Answer 1

Suppose the supply cure ... and Y= x+1 the demand curve y = axta a market equilibrium requires Denang Demand = supply => xt = -x +9 => 2x =8 => x= 4 I Hunce market equilibrium ocims at X=4 and y=x+1 = y = 4+1 = 5 Thes, market Y=5 equilibrium quantity X=4 and Price - supply conuc A -9 B7 400 Demand Doź ☺ . ! Now, supply cauc y=x+1 when X=0 Y- 1 j. When y=0, x=-1 Demand cmues Y = -Xta - When X=o y =9. ca Slanned with when y=0, x= q CamScanner

b) consues surplus is the demand care and abo Surplus is the area below the and above the price level MUL area of A.ABO SZx (9-5) X(4-0) el produces surplus is the area supply curve and below the price level Lii Area of ACBO Xx (5-1) X(4-0) Now due to negative entunality, quantity has been restricted only to 2 units of product to be consued / produced Now, | We get ! substituting x =2 in the supply cave = 2 +1 = 3 demand Care and substituting X=2, in the we get -- X ta = – 2+9= 7 Slanned with CamScanner EDEN

Huce puce producers will pay is get is 43 and consumers will pay is $7. Thus, now, (a) the consues sur plus will be Area of A APR = 1X (9-7) x (2-0) Hunce consmes sublin charged by $(8-2 ) = $6 And now produces suples will be area of neZS _X (3-1) X (2-0) 2 Huce produan surplus will fall by $ (8-2) = 46. And dead weigut loss is the area of ARSO X(7-3)_x_(4-22 Besond ) cu = 1/2 X 4 X2 = 4 Now, suppose a price ceilling is at o $3/unit cs Sdanned with Cimscanner

y = $3 /unt in Now, Supply bstituting substituting y=- equation we get Y= x + 1 3 = x +1 => X = 2 in the demand and substituting Y = $3 unit equation we get LycrXtas 3= -x79 >> X = 6 Huice Producus will produce 2 unit. conswers will demand 6 wants as result of this price ceilling. a Ica) Now, Consmen surplus! - Area of D #PR SZT A APR (7-3) x (2-0) 7. < x (9-77X(2-0) 8 + x 4x2 a 8+4 = $12 14 Tus, consues surplus will increase by & (128) = $4 producer Sur pley is the area of Acest ZA (3-1) x (2-0) § 2 producer b Sur plen Shanned with ImScanner

Huce producn surplus falls by (8-2) 86 and Deadweight loss = Area of AROS - Lx (7-3) x (4-2) Iea Scanned with_ CamScanner