Economics 101

Fall 2001

Answers for Practice Problems #3

 

  1. c

 

  1. c

 

  1. e

 

  1. a and d are correct (sketch a graph or two to check this out)

 

  1. d

 

  1. a

 

  1. b

 

 

  1. (a) The equilibrium price and equilibrium quantity are $200 per unit, and 400, respectively.

 

 (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

 

  1. (a) The equilibrium price and equilibrium quantity are$30 per unit and 15, respectively.

 

    (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.