Question

Consider the following market for board games: (Do NOT round values)

Qs= -20+4P Qd= 300-P

a) Calculate initial equilibrium supply and demand.

b) Calculate consumer and producer surplus. Show graphically.

c) Since board games make the world a better place, the government puts a $30 subsidy on all board games. Recalculate new equilibrium prices and quantity.

d) Show (c) in a graph and calculate consumer surplus, producer surplus, government cost and deadweight loss. Show these in the graph.

Answer 1

Qs= -20+4P Qd= 300-P
a)
Qs=Qd
-20+4P=300-P
5P=320
P= 64
Qs=-20+4P=-20+4*64 = 236
b) CS= 0.5*236*(300-64) = 27848
PS = 0.5*236*64 = 7552
c) From graph we find that, P = 40 and Q = 250
d) CS = 0.5*250*(300-40) = 32500
PS = 0.5*150*40+100*40 = 7000
DWL = =0.5*24*(250-236) = 168
Government cost = 14*30 = 420

P	Qd	Qs
0	-20	300
10	20	290
20	60	280
30	100	270
40	140	260
50	180	250
60	220	240
70	260	230
80	300	220
90	340	210
100	380	200
110	420	190
120	460	180
130	500	170
140	540	160
150	580	150
160	620	140
170	660	130
180	700	120
190	740	110
200	780	100
210	820	90
220	860	80
230	900	70
240	940	60
250	980	50
260	1020	40
270	1060	30
280	1100	20
290	1140	10
300	1180	0