Question

(Always use simple math and graphs in your responses if and where appropriate.)
1. Starting from the following demand function:
?=?−??
A) Derive a formula for consumer surplus as a function of Q (i.e. assume the decision maker is setting Q and letting the demand function determine P). Include a well-labeled graph.
B) Consider a capacity constraint Q' which limits the availability of Q for any given price. Derive a formula for consumer surplus as a function of ?' and P assuming excess demand exists for the given level of P. Include a well-labeled graph.
C) What kind of decisions might the existence of excess demand influence? (Give specific examples.)

Answer 1

Answer:

A)

B)