3. Consider a free market with demand equal to Q = 1,200 – 10P and supply equal to Q = 20P. A. What is the value of consumer surplus? What is the value of producer surplus? What is the total surplus? Qd=Qs (1200-10P) = 20P %3D 80 1200 = 30P Equilibrium price = $40 Equilibrium quantity = 80 니0 Consumer surplus = 1/2bh ½(120-40)*(800)=32000 20 PS = %(40-0) *(800) = 16000 TS = 32000+16000=48000 B. Now the government imposes a $10 per unit subsidy on the production of the good. What is the consumer surplus now? The producer surplus? Why there is a deadweight loss associated with the subsidy, and what is the size of this loss?
3. Consider a free market with demand equal to Q = 1,200 – 10P and supply equal to Q = 20P. A. What is the value of consumer surplus? What is the value of producer surplus? What is the total surplus? Qd=Qs (1200-10P) = 20P %3D 80 1200 = 30P Equilibrium price = $40 Equilibrium quantity = 80 니0 Consumer surplus = 1/2bh ½(120-40)*(800)=32000 20 PS = %(40-0) *(800) = 16000 TS = 32000+16000=48000 B. Now the government imposes a $10 per unit subsidy on the production of the good. What is the consumer surplus now? The producer surplus? Why there is a deadweight loss associated with the subsidy, and what is the size of this loss?
Chapter1: Making Economics Decisions
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Transcribed Image Text:3. Consider a free market with demand equal to Q = 1,200 – 10P and supply equal to Q = 20P.
A. What is the value of consumer surplus? What is the value of producer surplus? What is
the total surplus?
Qd=Qs (1200-10P) = 20P
%3D
80
1200 = 30P
Equilibrium price = $40
Equilibrium quantity = 80
니0
Consumer surplus = 1/2bh
½(120-40)*(800)=32000
20
PS = %(40-0) *(800) = 16000
TS = 32000+16000=48000
B. Now the government imposes a $10 per unit subsidy on the production of the good.
What is the consumer surplus now? The producer surplus? Why there is a deadweight
loss associated with the subsidy, and what is the size of this loss?
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