Question

Assume the market can be described by the following supply and demand curves.

Qs=2p
Qd=300-p

A. Solve for the equilibrium price and equilibrium quantity. Sketch this market.

B. Solve for the consumer surplus and producer surplus in this market.

C. If the government imposes a price ceiling of $90, does a shortage or surplus (or neither)

develop? What are the price, quantity supplied, quantity demanded, and the size of the

shortage or surplus (if one exists and the answers differ from part A).

D. If the government imposes a price floor of $90, does a shortage or surplus (or neither)

develop? What are the price, quantity supplied, quantity demanded, and the size of the

shortage or surplus (if one exists and the answers differ from part A).

E. Determine the change in consumer surplus and change in producer surplus that exists from

the binding price control from Parts C and D.

Hint: One of the questions contains a binding price control and one contains a non-binding price control.

Answer 1

Answer to question parts (a) - (d)

A) At equilibrium, Qd = Qs

Or, 300 - p = 2p

Or, 3p = 300

Or, p = 100

At p = 100, Qd = Qs = 200

Therefore, equilibrium price is $100 and equilibrium quantity is 200 units.