Question

A number of domestic and foreign manufacturing produce replacement parts and components for personal computer systems. With axacting user specifications, products are standardized and price competition is brutal. To illustrate the net amount of social welfare generation in this hotly competitive markets, assume that market supply and demand conditions for replacement tower cases can be described as
Qs = - 175 + 12,5P
Qd = 125 – 2,5 P
a. Where Q is output in thousans of units and P is price per unit
b. Use this graph to help you algebraically determine the amount of consumer surplus producer surplus, and net social welfare generated in market.

Answer 1

Qs= -175+12.5P

X intercept ( keeping P=0) = -175

Y intercept ( keeping Qs=0) = 14

Qd= 125-2.5P

X intercept ( keeping P=0) = 125

Y intercept ( keeping Qd= 0) = 50

At equilibrium Qd= Qs

125-2.5P= -175+12.5P

300= 15P

P*= 20

Qd*= Qs*= 125-2.5(20) = 75

​​​​​​Answer B) •Consumer surplus= Yellow region

Consumer surplus= Area of triangle ABC

Consumer surplus= (1/2)*base*height

base= 75

height= (50-20) = 30

Consumer surplus= (1/2)*75*30 = 1125

• Producer surplus= Green region

Producer surplus= Area of triangle CBD

Producer surplus= (1/2)*base*height

base= 75

Height= 20-14=6

Producer surplus= (1/2)*75*6 =225

•Net social welfare= Consumer surplus+ Producer surplus

Net social welfare= 1350