Question

Use the following equations to answer the remaining homework questions: Demand: P = 80 – 3Q Supply: P = 2Q + 20 What is the equilibrium price? What is the equilibrium quantity? What is the consumer surplus? What are total expenditures for consumers? What is producer surplus? What is the total revenue for the producer?

Answer #1

Demand

P = 80-3Q

Supply

P = 2Q + 20

At equilibrium demand = supply

So ,

80-3Q = 2Q + 20

Q = 12

Put Q in any of the above

P = 2Q + 20

P = 44

Therefore , equilibrium price is 44 and eq. Quantity is 12 .

Consumer surplus

Put Q = 0 in demand equation

P = 80-3Q

Q=0

NOW P = 80

But eq price is 44

Difference = 36

Consumer surplus formula 1/2*base*height

Q = 12

Consumer surplus = 1/2 * 12* 36

Consumer surplus is RS 216 /-

Total expenditure of consumer is 44*12 = 528/-

Producer surplus = 1/2 * base * height

Putting Q = 0 in supply eq.

P = 2Q + 20

P = 20

difference = 44-20

24

Surplus of producer = 1/2 *24*12

Rs = 144

Total producer revenue is same as consumer expenditure = 528 o.

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