Question

The market for a product has inverse demand and supply functions given by p = 290...

The market for a product has inverse demand and supply functions given by p = 290 - 2Qd and p = 10 + 1.5Qs

  1. In what form are these functions in? (2pts)

  2. Find the market equilibrium quantity Q* and price P*. (5pts)

  3. Draw out a simple graph with these curves. Label the p-intercept for each and indicate the equilibrium points. (5pts)

  4. Find the consumer and producer surpluses, along with the total surplus.(10pts)

(i) Would this market be considered efficient? (2pts)

Homework Answers

Answer #1

The inverse Demand : P=290-2Qd and SUpply: P=10+1.5Qs

1) Forms: Demand is downward slopping line and supply is positive slopping  line

2) Market Equilibrium: Solve for Q in Demand = Supply

290-2Q= 10+1.5Q => Q* = 80 and P=10+1.5*80= 130 ; P*=130

3)

4)

Producer Surplus: Area of rectangle: =80*130 = 10400

Consumer Surplus: Area of above small triangle : (1/2)(290-130)(80) = 6400

Total Surplus = 6400+10400 = 16800

as there is NO Dead Weight Loss... Thus this market is efficient.

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