Question

1. Consumer Surplus a. The inverse demand curve facing a firm is p = a – bQ. Ifp = - determine the consumer surplus. This will be a general equation. b. This general equation may seem abstract. Recall that in general, consumer surplus is the area under the demand curve and above the price. Let a = 100, p = - = 50, and Q = 100. Solve for consumer surplus using the basic 12(Base*Height) formula. Then solve using the general equation you generated in la. Show that they are the same. c. Let price increase to 75, p = 75 and Ap = 25. Find the change in consumer surplus. d. In general, how is the change in consumer surplus from any given price change related to the price elasticity of demand (€)?

Answer 1

given P=a-bd 100 - 50= 크을 = ab9 | 을 - a = -5g | 키 - - - | 능에 뜸 W consumer serplus = 2 (a-q) x 2 4 | - 글 = consumer surplus = a) 1 1 P = 50 ) A | 100 = →100 = 을 326=쿠b드를 consumer surplus = } xbaye x height = x (100 50J x 10-09 - 1x SD 10 2 3 500 @ p= 100 259 C a=100 ,6=) 아 P=75 15 2 100 - IQ | > AS-14 | 2 4 = 500 New consumer susplay = £x (100-75) * (50-0) o 2 | - 2 x 5D = 625 I change in consumer Surplay = 2500-625 = 18757

@ price elasticity of demandes= a very € = net = sex son = 2x1 = 1 Les=2