Answered: Consider the following demand and…

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

Consider the following demand and supply function of product ZT:

Qd = 25 - 1.25 P Qs = -9 + 3 P

Note: Determine the equilibrium point first to answer the following question.

3. How much is the producer surplus, with out sales tax? Use a number, 2 decimal values, no commas, no space, no signs. *

4. What is the equilibrium point? *

a. (15 , 8 )

b. (8 , 15)

c. (8 , 25)

d. (15 , 21)

Expert Solution

Step 1

To find the equilibrium point, we equate demand to supply

, $\begin{array}{rcl} Q_{d} & = & Q_{s} \\ \Rightarrow & 25 - 1.25 P = - 9 + 3 P \\ \Rightarrow & 4.25 P = 34 \\ \Rightarrow & P = \frac{34}{4.25} \\ \Rightarrow & P * = 8 \end{array}$

Plugging in the value of P* in demand equation,

$\begin{array}{rcl} Q * & = & 25 - 1.25 * 8 \\ = & 25 - 10 = 15 \end{array}$

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