Question

A market has a demand curve given by P = 800 – 10Q where P =...

  1. A market has a demand curve given by P = 800 – 10Q where P = the price per unit and Q = the number of units. The supply curve is given by P =100 + 10Q.


    1. (10 points) Graph the demand and supply curves and calculate the equilibrium price and quantity in this market.

    2. (5 points) Calculate the consumer surplus at equilibrium.

    3. (5 points) Calculate the producer surplus at equilibrium.(5 points)


    4. (5 points) Calculate the total surplus at equilibrium

Homework Answers

Answer #1

Demamd equation; P = 800 – 10Q

supply equation P =100 + 10Q.

Equilibrium achived where Demand = Supply

800-10Q = 100+10Q

20Q = 700

Q =700/20

Q = 35

Put Q = 35 in demand equation to calculate equilibrium price

P = 800 -10Q

P = 800 - 10*(35)

P = 800 - 350

P = 450

Consumer Surplus = 1/2*change in price *quantity

= 1/2*(800-450)*35

= 6,125

Producer Surplus = 1/2*change in price *quantity

= 1/2*(450-100)*35

= 6,125

Total Surplus = Consumer surplus + Producer surplus

= 6,125+6,125

= 12,250

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