Begin with a market where Qd = 20,000 - 20P and Qs = 4000 + 40P. 1. Draw the graph of demand and supply. Label all the axes. You will need them. 2. Find the equilibrium price and quantity in the market. 3. Find the consumer surplus at equilibrium. 4. Find the producer surplus at equilibrium. 5. Find the net benefit at equilibrium. 6. Suppose the government sets a price control at P=500. In order to have an effect on the market, must this be a price floor or price ceiling? 7. Will this price control cause a surplus or shortage? 8. Who will benefit from the price control? 9. What is the magnitude of the surplus or shortage? 10. What is the welfare loss from the price control? (Just try this one.)

Begin with a market where Qd = 20,000 - 20P and Qs = 4000 + 40P. 1. Draw the graph of demand and supply. Label all the axes. You will need them. 2. Find the equilibrium price and quantity in the market. 3. Find the consumer surplus at equilibrium. 4. Find the producer surplus at equilibrium. 5. Find the net benefit at equilibrium. 6. Suppose the government sets a price control at P=500. In order to have an effect on the market, must this be a price floor or price ceiling? 7. Will this price control cause a surplus or shortage? 8. Who will benefit from the price control? 9. What is the magnitude of the surplus or shortage? 10. What is the welfare loss from the price control? (Just try this one.)

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

Begin with a market where Qd = 20,000-20P and Qs = 4000 + 40P.
1. Draw the graph of demand and supply. Label all the axes. You will need them.
2. Find the equilibrium price and quantity in the market.
3. Find the consumer surplus at equilibrium.
4. Find the producer surplus at equilibrium.
5. Find the net benefit at equilibrium.
6. Suppose the government sets a price control at P=500. In order to have an effect
on the market, must this be a price floor or price ceiling?
7. Will this price control cause a surplus or shortage?
8. Who will benefit from the price control?
9. What is the magnitude of the surplus or shortage?
10. What is the welfare loss from the price control? (Just try this one.)

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Step 2: Part 1-The figure

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Solution

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Step 3: Part 2-Equilibrium

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Step 4: Part 3-Consumers' surplus

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Step 5: Part 4-Producers' surplus

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Step 6: Part 5-Net benefit

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Step 7: Part 6-Government interferes

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Step 8: Part 7-Surplus or shortage

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Step 9: Part 8-Benefitting and loosing parties

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Step 10: Parts 9 and 10-Surplus/shortage magnitude and net welfare loss

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