Question

Suppose the market demand for a commodity is given by the download sloping linear demand function:

P(Q) = 3000 - 6Q

where P is a price and Q is quantity. Furthermore, suppose the market supply curve is given by the equation:

P(Q) = 4Q

a) Calculate the equilibrium price, quantity, consumer surplus and producer surplus.

b) Given the equilibrium price calculated above (say's P*), suppose the government imposes a price floor given by P' > P*. Pick any such P' and compute the resulting consumer surplus, producer surplus and resulting dead-weight loss. (For example, if you calculated P* = 100 then pick any P' > 100 such as P' = 120 and compute the resulting consumer surplus, producer surplus and dead-weight loss.)

C) now, suppose instead, the government imposes a price ceiling given by P" < P*. Pick any such P" and compute the resulting consumer surplus, producer surplus and resulting dead-weight loss.

Answer 1