Part A: Demand for a commodity is given by P=10-2Qd, supply for the commodity is
ID: 1224523 • Letter: P
Question
Part A: Demand for a commodity is given by P=10-2Qd, supply for the commodity is given by P=.4 +Qs. Assuming no externalities, find the market clearing price, quantity, consumer and producer surplus
Part B: Now assume the discovery of a new cost not bore by producers is discovered.If this cost is accurately measure, supplyisequal to P=.7+Qs.Find the new market clearing price, quantity, and market surplus.
Part C: Compare your answers in #4 and #5.If the increase in cost from #4 to #5 is a negative externality that is not able to be assessed, what is the corresponding deadweight loss?
Explanation / Answer
Part A:
At equilibrium level,
Demand of commodity = Supply of Commodity
10 - 2 Q = 4 + Q
3 Q = 6
Q = 2 [ Quantity = 2 Units ]
The Market Clearing Price (P) = 10 - 2 Q
= 10 - 2 * 2
= 10 - 4
= $ 6
Consumer Surplus = 1 / 2 * 6 * 2 = 1 / 2 * 12 = $ 6
Producer Surplus = Price * Quantity = 6 * 2 = $ 12
Conclusion:- Part A
Part B [Supply of Commodity is given by P = 7 + Q]
At equilibrium level,
Demand of commodity = Supply of Commodity
10 - 2 Q = 7 + Q
3 Q = 3
Q = 1 [ Quantity = 1 Unit ]
The Market Clearing Price (P) = 10 - 2 Q
= 10 - 2 * 1
= 10 - 2
= $ 8
Consumer Surplus = 1 / 2 * 8 * 1 = 1 / 2 * 8 = $ 4
Producer Surplus = Price * Quantity = 8 * 1 = $ 8
Conclusion:- Part B
Particulars (In $) Market Clearing Price 6 Quantity 2 Producer Surplus 12 Consumer Surplus 6