Question

Suppose that the supply curve for housing in an American sunbelt megacity is:

P = 0.125 Q

where P is the price per month per bedroom of an attractive central location, and Q is the number of bedrooms—the number of people—in millions. (People in less attractive locations get a discount, and people who own rather than rent have a more complicated problem. But for simplicity assume that we can represent this whole market by just one supply curve and one demand curve.)

Demand for housing in a west coast sunbelt city—call it Ellay—is: P = 4 - 0.125 Q

where, once again, P is the price per month per bedroom of an attractive central location, and Q is the number of bedrooms—the number of people—in millions.

What is the equilibrium price? What is the equilibrium quantity?

What is the consumer surplus? What is the producer surplus?

Now let’s consider another west coast
megacity: call it Esseff. The supply curve and the demand curve for
housing in Esseff are the same as in Ellay. But local politics have
given control over zoning to the NIMBY lobby—Not In *My*
Back Yard—and so the housing stock in Esseff is fixed by government
regulation at a maximum of 6 million bedrooms. Suppose rent control
has been outlawed—landlords lucky enough to have built can charge
what the market will bear. What is the equilibrium price? The
equilibrium quantity? The consumer surplus? The producer
surplus?

Are landlords as a class happy or unhappy that Esseff has powerful zoning and growth restrictions—that Esseff is not Ellay? How happy or unhappy are they?

Are people trying to live in Esseff as a class happy or unhappy that Esseff has powerful zoning and growth restrictions—that Esseff is not Ellay? How happy or unhappy are they?

What effects other than on price do the zoning restrictions have on housing in Esseff relative to Ellay?

Answer #1

Suppose that the demand equation: P = 6 – Q and supply equation:
P = Q.
a. Calculate the price elasticity of demand at
equilibrium.
b. Calculate the equilibrium price and quantity, and consumer
surplus and producer surplus.
c. Suppose government imposes a unit tax of $1 on producers. Derive
the new supply curve and also calculate the new equilibrium price
and quantity.
d. Calculate tax revenue and the deadweight loss of this tax.

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

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p=3
i) Describe how the equilibrium changes. ii) What effect does
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Suppose that in a hypothetical economic setting, the demand
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Suppose the demand curve is given by Qd=75-5P and the supply
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given by P = 40 – 1/2Q.
a. Find the equilibrium price and quantity, and calculate the
resulting consumer surplus and producer surplus. Indicate the
consumer surplus and producer surplus on the demand and supply
diagram.
b. Suppose the government imposes a 10 dollars of sale tax on
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Suppose the demand and supply for a product is given by the
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p=d(q)=−0.8q+150
(Demand)
p=s(q)=5.2q
(Supply)
For both functions, q is the quantity and p is the price.
Find the equilibrium point. (Equilibrium price and equilibrium
quantity) (1.5 Marks)
Compute the consumer surplus. (1.5 Marks)
Compute the producer surplus. (1.5 Marks)

The demand curve of a perfectly competitive product is
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P = $1000 – Q where Q =
thousands
The supply curve is given by
P = $100 + 2Q where Q =
thousands
Graph the demand and supply curves; use a grid size of 100.
Calculate the equilibrium price and quantity (carefully state the
units). Find the consumer surplus CS, the producer surplus
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A.1. a. Suppose the demand function P = 10 - Q, and the supply
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b. Suppose government imposes per unit tax of $2 on consumers.
The new demand function becomes: P = 8 – Q, while the supply
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Calculate the new equilibrium price and quantity. c.
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