Question

Suppose the market demand for good X is given by QXd = 20 - 2PX. If the equilibrium price

of X is $5 per unit, then the total value a consumer receives from consuming the

equilibrium quantity is

Answer 1

Demand function is as follows -

QXd = 20 - 2PX

Equilibrium price, PX = $5 per unit

QXd = 20 - 2PX

QXd = 20 - (2*5) = 20 - 10 = 10

The equilibrium quantity is 10 units.

Calculate the price when quantity demanded is zero -

QXd = 20 - 2PX

0 = 20 - 2PX

2PX = 20

PX = 20/2 = 10

Calculate the consumer surplus -

CS = 1/2 * [Price when quantity demanded is zero - Equilibrium price] * Equilibrium quantity

CS = 1/2 * [10 - 5] * 10

CS = 25

Calculate the total value -

Total Value = [Equilibrium price * Equilibrium quantity] + Consumer surplus

Total Value = [$5 * 10] + $25

Total Value = $50 + $25

Total value = $75

Thus,

The total value a consumer receives from consuming the equilibrium quantity is $75.