Supply and Demand Functions
Not what you're looking for?
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.
---
5) Supply P = 2Q + 170
Demand P = -5Q + 450
2Q + 170 = -5Q + 450
+5Q - 170 = -2Q - 170
_____________________
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
---
Purchase this Solution
Solution Summary
The supply and demand functions
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.