Question

The corn market is perfectly competitive, and the market supply and demand curves are given by the following equation: Qd =50,000,000 – 2,000,000 p Qs = 10,000,000 +5,500,000 p Where Qd and Qs are quantity demanded and quantity supplied measured in bushels, and P= price per bushel.

1) Determine consumer surplus at the equilibrium price and quantity.

Answer 1

1) Equilibrium occurs at that level of price at which Quantity demand = quantity supplied.

Given: Qd =50,000,000 – 2,000,000p and Qs = 10,000,000 +5,500,000p

=> 50,000,000 – 2,000,000p = 10,000,000 +5,500,000p

=> 500 – 20p = 100 +55p

=> 400 = 75p

=> p = 5.33 and q = 39333333.33

Consumer surplus is the area above price line and below demand curve.

Y intercept(point at which q = 0) = 25

Hence consumer surplus = (1/2)(39333333.33)(25-5.33) = 386843333.30

Hence At equilibrium, consumer surplus = 386843333.30