Question

The supply function in the market for LA Lakers tickets is Q = P − 10 and the inverse demand function is P = 40 − 2Q. Ticket sellers are having a hard time selling LA Lakers tickets so the California government steps in to subsidize ticket sales by 6 dollars per ticket. What is the resulting consumer surplus?

Answer 1

Because of Subsidy given by Government, supply will shift to the right and is given by:

Q = (P + 6) - 10 => P = Q + 4

Demand is given by:P = 40 - 2Q

Hence As equilibrium occur at the price at which, quantity demand = quantity supplied => Q + 4 = 40 - 2Q

=> Q = 12 and Price consumers are paying = 12 + 4 = 16

Hence Consumers are buying 12 units at 16

Consumer surplus is the area above Price line and below demand curve

When Q = 0 , P = 40--------------------(From demand curve equation)

When Q= 12 , P =  16--------------------(From demand curve equation)

Hence consumer surplus = (1/2)(12)(40 - 16) = 144

Hence consumer surplus = $144