Question

1. Given the demand and supply system: Pb = 60 - 6.25 Qb & Pb = 13 + 6 Qv. How much total surplus is created by producing 2 more units than the equilibrium Q*?

2. Given the demand and supply system: Pb = 335 - 4.5 Qb & Pv = 9 + 4.8 Qv. How much total surplus is created by producing 2 less units from the equilibrium Q*?

3. Given the demand and supply system: Pb = 55 - 11.75 Qb & Pv = 3.5 + 7.95 Qv. How much surplus is created by the market?

Answer 1

1 Given the demand and supply equation . The equilibrium exists where the two curves intersects

60-6.25Q = 13 +6Q

47 = 12.25Q. This implies Q = 47/12.25 ; Q = 3.84. P* = 36

Total Surplus = Consumer surplus + Producer Surplus

Consumer Surplus = 0.5*( 60-36)*(3.84) = 46.08

Producer Surplus = 0.5*(36-13) *3.84 = 44.16

Total surplus = 46.08+44.16 = 90.24

If 2 more units are supplied this will lower price in the market new price will be P' = 23.5

Consumer Surplus = 0.5*( 60-23.5)*(5.84) = 106.58

Producer Surplus = 0.5*(23.5-13) *5.84 = 30.66

Total surplus = 106.58+30.66 = 137.24

Surplus will increase by = 137.24 - 90.24 = 47

*For solution to other parts please post as a separate question.Supposed to do only one question