Suppose you are given the following Supply and Demand equations. P=80-Q P=20+2Q How much would producers...
- Suppose you are given the following Supply and Demand equations.
P=80-Q
P=20+2Q
How much would producers be willing to pay lobbyists to get the government to establish a price floor at $70?
Homework Answers
At equilibrium, Qd=Qs
80-Q=20+2Q
Q*= 60/3=20
P*= 80-20=$60
Producer would be willing to pay the lobbyists equap to the rise in producer surplus due to price floor of $70.
Old Producer surplus=0.5(60-20)(20)= 0.5*40*20=$400
When P= $70, Qs= (70-20)/2=25
New producer surplus=0.5(70-20)(25)=0.5*50*25=$625
Rise in producer surplus= Price paid to lobbyists= $625-$400=$225
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