**Text:**3) A government directly provides 20 units in a local market through an auction of surplus property. The METB is 0.2. The elasticity of demand is -4. Other pertinent information is provided in the figure. Calculate the changes in PS, CS, GS, and SS associated with the sale.**Graph Explanation:**The graph is a standard supply and demand chart with the following components:- **Axes:** - The vertical axis (P) represents price. - The horizontal axis (Q) represents quantity.- **Supply and Demand Lines:** - The **Demand** (D) line slopes downwards from left to right, illustrating the relationship between price and quantity demanded. - The **Supply** (S) line and a shifted supply line (S+20) slope upwards from left to right. The shift from S to S+20 represents a government supply increase of 20 units.- **Equilibrium Points:** - The intersection of the original supply line (S) and the demand line (D) occurs near a price of 10.0 and a quantity of 50. - The intersection of the shifted supply line (S+20) and the demand line (D) occurs at a lower price, approximately 9.5.The graph is used to assess changes in Producer Surplus (PS), Consumer Surplus (CS), Government Surplus (GS), and Social Surplus (SS) due to the government's direct provision of additional units.

3) A government directly provides 20 units in a local market through an auction of surplus property. The METB is 0.2. The elasticity of demand is -4. Other pertinent information is provided in the figure. Calculate the changes in PS, CS, GS, and SS associated with the sale.

3) A government directly provides 20 units in a local market through an auction of surplus property. The METB is 0.2. The elasticity of demand is -4. Other pertinent information is provided in the figure. Calculate the changes in PS, CS, GS, and SS associated with the sale.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

**Text:**

3) A government directly provides 20 units in a local market through an auction of surplus property. The METB is 0.2. The elasticity of demand is -4. Other pertinent information is provided in the figure. Calculate the changes in PS, CS, GS, and SS associated with the sale.

**Graph Explanation:**

The graph is a standard supply and demand chart with the following components:

- **Axes:**
- The vertical axis (P) represents price.
- The horizontal axis (Q) represents quantity.

- **Supply and Demand Lines:**
- The **Demand** (D) line slopes downwards from left to right, illustrating the relationship between price and quantity demanded.
- The **Supply** (S) line and a shifted supply line (S+20) slope upwards from left to right. The shift from S to S+20 represents a government supply increase of 20 units.

- **Equilibrium Points:**
- The intersection of the original supply line (S) and the demand line (D) occurs near a price of 10.0 and a quantity of 50.
- The intersection of the shifted supply line (S+20) and the demand line (D) occurs at a lower price, approximately 9.5.

The graph is used to assess changes in Producer Surplus (PS), Consumer Surplus (CS), Government Surplus (GS), and Social Surplus (SS) due to the government's direct provision of additional units.

Expert Solution

Step 1

Initial supply is S where the quantity is 50 units and the price is $10

Then the supply is S+20 inclusive of directly provided goof where the quantity is 70 units and the price is $9.5

Elasticity is -4

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