Homework TWO Name ________________________________________________
Due Wednesday, March 16
Show your work for all calculations.
Supply and demand in a hypothetical market are given by the following equations:
Qs = – 30 + 2P and Qd = 180 –P where P is the price in dollars.
If we allow the market to reach equilibrium, what is:
A. The equilibrium price?
B. The equilibrium quantity?
C. The amount of producer surplus?
D. The amount of consumer surplus?
E. The amount of total surplus?
Sketch a graph to illustrate your answers above.
Now, suppose that a price floor is imposed at $90 and that sellers will only be able to sell what consumers buy at that price. In other words, there is no government entity that will take the remaining surplus off the market.
With the price floor, what is:
F. The quantity producers would want to supply?
G. The quantity producers actuallywill supply?
H. The value of resources expended in competing for buyers?
I. The remaining producer surplus?
J. The remaining consumer surplus?
K. The deadweight loss?
Sketch a graph to illustrate your answers.
Show that the sum of your answers to parts (H), (I), (J), and (K) equals your answer to part (E).
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