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# Supply and Demand Functions

I am confused as to how to complete question 6. Not sure if i have the correct values, and if so, how to calculate the producer, consumer and social surplus. Also, lost on the per unit tax of 10 per unit and per unit subsidy of 50 per unit.

Please find work and questions attached.

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5) Supply P = 2Q + 170
Demand P = -5Q + 450

2Q + 170 = -5Q + 450
+5Q - 170 = -2Q - 170
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7Q = 280
Q = 40, P = 250

6a) Price Ceiling:

Price

450 S

a b
P* = 250 Old Equilibrium, New Equil (Pc, Qs)
c d
Price Ceiling
200 e

170 Shortage D

32 40 48 Qty
Qs Q* QD

Before After Change Net Change
Consumer Surplus
a,b
a,c
+c, -b
Producer Surplus
c,d,e
e
-c, -d
Social Surplus -b, -d

In this case, the price ceiling is causing a shortage. 48 units are demanded, but only 32 are supplied, resulting in underproduction of 16 units. The value to buyers is greater than the cost to sellers.

6b) Price Floor of 325

Price

450 Surplus S
a
325

b c
P* = 250 Old Equilibrium, New Equil (Pc, Q1)
e
d

170 D

32 40 52 Qty
Q1 Q*

Before After Change Net Change
Consumer Surplus
a,b,c
A
-b, -c
Producer Surplus
d,e
d,b
-e, +b
Social Surplus -c, -e

In this case, with a minimum price of \$325, 52 units will be supplied, 32 will be demanded, and there will be a surplus of 20. The twelve new units shows an increase in production, not present before. The value to sellers is greater than the cost to buyers.

6c) A per unit tax of 10 per unit
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#### Solution Summary

The supply and demand functions

\$2.19