1. The demand and supply functions for widgets are as follows: Qd =60-0.5P Qs =0.5P-20 a....
1. The demand and supply functions for widgets are as follows:
Qd =60-0.5P
Qs =0.5P-20
a. Solve for the competitive equilibrium price and quantity of widgets in this market. Illustrate this equilibrium in a graph.
On your graph, show the regions that represent consumer surplus and producer surplus. Calculate the value of consumer surplus, producer surplus, and overall welfare.
b. Suppose the government enacts a law stating that only 10 widgets can be produced and sold in the market. At what price will widgets be sold? Calculate the value of consumer surplus, producer surplus, and overall welfare under this regime.
Does this policy impose a deadweight loss on society? If so, calculate the value of this deadweight loss. Which region on the graph represents this deadweight loss?
c. Suppose that, instead of the quantity restriction, the government introduces a price floor of $90 per widget. Additionally, the government agrees to purchase any surplus widgets at this price and to give away any excess widgets. How many widgets will consumers want to buy? How many widgets will firms want to produce? How many does the government purchase?
Does this policy impose a deadweight loss on society? If so, calculate the value of this deadweight loss. Which region on the graph represents this deadweight loss?
Homework Answers
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1. The demand and supply functions for widgets are as
follows:
Qd =60-0.5P
Qs =0.5P-20
a....
7. A monopolist in the market for widgets is facing a demand curve P= 60 -...
7. A monopolist in the market for widgets is facing a demand curve P= 60 - Q. The marginal cost of producing Q units is equal to $Q. (a) Calculate the monopolist's profit maximizing price and quantity. Calculate producer, consumer, and total surplus, and deadweight loss. (b) The government wants to impose a price ceiling that will maximize the total surplus in the market. What price ceiling should the government set? What would be the new values of consumer and...
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The demand and supply conditions of market for beer are given by the following equations: Qd = 72 - P and Qs = -18 + P a) Find the initial equilibrium price and quantity. b) Calculate the consumer surplus and producer surplus for the equilibrium. c) Suppose that government impose a price floor at P=66 to control the consumption of beer. Is this policy effective? What are price and quantity consumed after this intervention of government? d) Going back to...
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