Answer to Question #151235 in Engineering for Jordan Garwood

Question

In a market with Pd = 150 – 3 Qd and Ps = 50 + Qs , the government has regulated maximum of 20 units and is concerned if this move was maybe a little too harsh, especially if the deadweight loss to consumers (voters) is greater than the deadweight loss to producers

Answer 1

If Pd = 150 – 3Qd and Ps = 50 + Qs, then in equilibrium:

$150 – 3Q = 50 + Q,$

4Q = 100,

Q = 25 units.

P = 50 + 25 = 75.

the government has regulated maximum of 20 units, then Pd = 150 - 3×20 = 90 and Ps = 50 + 20 = 70.

The deadweight loss to consumers (voters) is:

$DWLc = 0.5×(25 - 20)×(90 - 75) = 37.5,$

And the deadweight loss to producers is:

$DWLp = 0.5×(25 - 20)×(75 - 70) = 12.5.$