Price, Supply, and Demand Questions I

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In summary: Consumer's surplus at the equilibrium point, which is:\(\Delta Q_{\text{CB}} = (100-5)(10+0.1)=90\)PE is the Producer's surplus at the equilibrium point, which is:\(\Delta Q_{\text{PE}} = (100-5)(10+0.1)=90\)
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Fuzzyllama
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I need some help finishing a few problems on my assignment. Any help is appreciated

1. Suppose demand is given by Qd=100-5P. Qs=10P. The government imposes a price ceiling of $ \$4$. I am required to calculate consumer and producer surplus which i have, but i need to calculate the dead weight loss.

2. The current market price for bananas is $ \$.10$ per pound. 1 million pounds are demanded at this price. Elasticity of demand is -5 and short run Es is 0.05. Solve for the equations of demand and supply assuming they are linear.

Thanks in advance for any help!
 
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Fuzzyllama said:
I need some help finishing a few problems on my assignment. Any help is appreciated

1. Suppose demand is given by Qd=100-5P. Qs=10P. The government imposes a price ceiling of $ \$4$. I am required to calculate consumer and producer surplus which i have, but i need to calculate the dead weight loss.

You do not tell us what the difficulty you are having with this question, please do. And please indicate what you have tried.

A few definitions:

Consumer Surplus: The area under the demand curve between the demand at \$0 and the demand at the current price.

Producer surplus: The area below the demand at the current price and above the demand curve between a price of \$0 and \$4.

The dead weight loss is the change in the total surplus.

2. The current market price for bananas is $ \$.10$ per pound. 1 million pounds are demanded at this price. Elasticity of demand is -5 and short run Es is 0.05. Solve for the equations of demand and supply assuming they are linear.

Thanks in advance for any help!

The demand curve is of the form:

\(Q_d = m P+c\)

and the supply curve of the form

\(Q_s = C + M P\)

You are told that \(M=-5\) and \(m = 0.05\) and that \(P=0.1\), \(Q_d=Q_s=1000000\) is the equilibrium point and so, on the demand curves.

CB
 

FAQ: Price, Supply, and Demand Questions I

What is the relationship between price and supply?

The relationship between price and supply is known as the law of supply. As the price of a product increases, the quantity supplied by producers also increases, and vice versa. This is because higher prices provide an incentive for producers to sell more of their product, while lower prices may result in a decrease in production.

How does demand affect the price of a product?

Demand is the other half of the equation in determining the price of a product. The law of demand states that as the price of a product increases, the quantity demanded by consumers decreases, and vice versa. This is because as prices rise, consumers may choose to purchase less of the product or look for alternatives, which can result in a decrease in demand and a lower price.

What factors can impact supply and demand?

Several factors can impact supply and demand, including changes in consumer preferences, changes in production costs, availability of resources, and changes in the overall economy. These factors can cause shifts in supply and demand curves, which can ultimately impact the equilibrium price and quantity of a product.

What is the role of price in a market economy?

In a market economy, prices play a crucial role in allocating resources and determining the production and consumption of goods and services. Prices act as signals for producers and consumers, providing information about the availability and desirability of products. They also help to balance supply and demand, ensuring that resources are used efficiently.

How do changes in supply and demand affect the market equilibrium?

Changes in supply and demand can cause shifts in the market equilibrium, which is the point at which the quantity supplied equals the quantity demanded. When there is an increase in demand, the equilibrium price and quantity will also increase. Similarly, a decrease in demand or an increase in supply can cause a decrease in the equilibrium price and an increase in the equilibrium quantity. Ultimately, the market equilibrium is a dynamic balance that is constantly adjusting to changes in supply and demand.

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