Suppose that the market demand for broccoli is given by Q=1000-5P and the market supply of broccoli is given by Q=4P-80 where Q is quantity per year measured in hundreds of bushels an P is price in dollars per hundred bushels.

a. Find the equilibrium price/quantity combination
b. How much in total is spent on broccoli?
c. What is consumer surplus in dollars at this equilibrium?
d. What is producer surplus in dollars at this equilibrium?
e. Graph your results

2. Since the federal government believes a diet with broccoli included is good, it decides to subsidize the price paid by the buyer. The subsidy is $45.

a. Find the new equilibrium price/quantity combination (Remember: Pb=Ps-S).
b. What is the total subsidy in dollars?
c. How much in total dollars is spent on buyers on broccoli?
d. What is the deadweight loss in dollars?
e. Graph your results?

Solution Preview

1.Demand Curve: Q=1000-5P (1)
Supply Curve: Q=4P-80 (2)
a) at the new equilibrium, both curves meet each other. So we should find Q and P who satisfy equation (1)& (2)
Use basic calculation, substitute (1) into (2): 1000 - 5P = 4P - 80
You can find P* = 120, then substitute P* into (2), you can get: Q* = 400
b) The total spending on broccoli is: P* Q* = ...

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