Question #86245
Given the following inverse demand and supply curves
P=8-Qd/2
P=2+Qs
and assuming the price is fixed below the equilibrium price at $5, what is the loss in producer surplus due to the price ceiling
The answer is $3.50
But how did they get to this ? Please explain.
P=8-Qd/2
P=2+Qs
and assuming the price is fixed below the equilibrium price at $5, what is the loss in producer surplus due to the price ceiling
The answer is $3.50
But how did they get to this ? Please explain.
Expert's answer
At equilibrium, Qd = Qs
16 - 2P = P-2
3P = 18
6 - equilibrium price (Pe)
Qs = 6-2=4 units
With a price of $ 5 Qs = 5-2 = 3 units
the loss in producer surplus due to the price ceiling - $5 (P)
= (6-5)*3+1/2*((6-5)*(4-3))=1*3+1/2*(1*1)=3+0.5=3.5
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#340153 on Dec 2023
#340153 on Dec 2023
Comments
Dear Michelle pinato, please see updated answer.
Where does 8-5/2 come from ? As Qd is quantity demand , not sure why the price 5 , is divided by 2? (