Answer to Question #62317 in Macroeconomics for Dominic

Question

In a perfectly competitive market, the market demand curve is given by Qd = 200 -5P, and

the market supply curve is given by Qd =35P.

i. Find the equilibrium market price and quantity demanded and supplied in the absence

of price controls.

ii. Suppose a price ceiling of $2 per unit is imposed. What is the quantity supplied with a

price ceiling of this magnitude? What is the size of the shortage created by the price

ceiling?

iii. Find the consumer surplus and producer surplus in the absence of a price ceiling.

iv. Find the consumer surplus and producer surplus under the price ceiling.