Economics
101
Fall 2001
Answers for Practice Problems #3
(b) Consumer’s surplus is $20000 ( = ½ * 400 * 100 )
Producer’s surplus is $40000 ( = ½ * 400 * 200 )
(c) Consumer’s surplus at the price of 210 is $16,200 ( = ½ * 90 * 360 )
Thus, the loss in consumer’s surplus is $3800 ( = 20000-16200 )
(d) Since the new supply curve is P = (1/2)Q + 6 or Q = 2P - 12, the new equilibrium price is $202 per unit and the new equilibrium quantity is 392 units.
(e) The new consumer’s surplus is $19208 ( = ½ * 98 * 392 )
Thus, the loss in consumer’s surplus is $792 ( = 20000-19208 )
(f) Deadweight loss = ½ * 6(= tax)*(400-392) = $24
(b) At the floor price of $40 per unit, excess supply is 15 ( = 25-10 ).
Government expenditure = (Excess supply)*(Floor price) = 15 units*$40 per unit = $600
(c) At the guaranteed price of $35, the quantity supplied is 20.
We can, then, calculate the consumer’s price of $20 at the quantity supplied of 20 in the market.
Thus, subsidy per unit by government is $15 per unit and the cost to the government of this program is $300.