Estimate demand or supply-equilibrium price, Macroeconomics

Suppose that the demand curve for apples is given by Qd = 140 -  5P, where Qd is the number of pounds demanded per year and p is the price per pound. The supply of apples can be described by Qs = 40 + 3P, where Qs is the number of pounds provided.

A   What is the equilibrium price? (Hint: At the equilibrium, quantity demanded and quantity supplied are equal, Qd = Qs.)

equate demand to supply

140-5P=40+3P

100=8P

P= 12.5

B   What is the equilibrium quantity supplied and demanded?

Put the value of P in demand, supply equation In supply equation we get Q= 77.5 = 40+3*12.5 = quantity demanded = quantity supplied as this is an equilibrium point

C   Calculate the consumer surplus at the equilibrium price.

We need price when Qd= 0

Put Qd= 0 in demand equation to get P= 140/5 =28

Consumer surplus = ½*(28-12.5) *77.5 = 600.625

D  Calculate the producer surplus at the equilibrium price.

We need price when Qs= 0

Put Qs= 0 in supply equation to get P= -40/3

Producer surplus = ½*(12.5-(-40/3) *77.5 = 1000.9125

E Calculate the total surplus at the equilibrium price.

Total surplus = 600.625+1000.6125 = 1601.0375

F  Now suppose that the government imposes a tax of $8 per each pound sold, paid by

the consumers,. In this case, what are the price and the consumer surplus? 

Now supply curve becomes Qs= 40+3(p-8) = 16+3p

For equilibrium:

16+3p = 140-5p

8p = 124

P = 15.5 and Q= 140-5*15.5=62.5

Consumer surplus = ½*(28-15.5)*62.5 = 390.625

Posted Date: 3/6/2013 4:42:27 AM | Location : United States







Related Discussions:- Estimate demand or supply-equilibrium price, Assignment Help, Ask Question on Estimate demand or supply-equilibrium price, Get Answer, Expert's Help, Estimate demand or supply-equilibrium price Discussions

Write discussion on Estimate demand or supply-equilibrium price
Your posts are moderated
Related Questions
Explain the trade-off between equity and efficiency. Identify how individuals and organizations are likely to change their behavior as a result of government actions.

Subsidy programs are likely to have a number of secondary effects in addition to the direct effect on dairy prices. What impact do you suppose farm subsidies are likely to have on


Macroeconomics deals with the economy as a whole. The millions of individual microeconomic decisions of the people, businesses, and government in their totality represent a nation'

What is Quantitative easing Quantitative easing (QE) is an unorthodox monetary policy which since 2009 has been intermittently pursued by Bank of England and US Federal Reserv

What are UN Millennium Development Goals? The UN Millennium Development Goals (MDGs): These are a set of objectives shared through the IMF, the OECD and the World Bank (WB)

In 2009, ABC Company made $2M of net profit and spent $100,000 on advertisement. In 2010, it made $2.5M of net profit and spent $150,000 of advertisement. Based on this information

Discuss whether intergroup conflict and intergroup competition are the same or different. Provide examples to support your position. What strategies can a leader use to ensure that

Relationship between the interest rate and the bond price Note that the higher the issue price, the lower the interest rate. Similarly when the price of a government bond incr

Define the monopoly of Central banks The central bank has a monopoly on issuing currency, it is in complete control of the monetary base. In section 7.4.2 we will describe exac