Question

Given the demand function Pd=25- 2Q and the supply function Ps= 2Q+1.Asssuming
pure competition, find the consumers’ surplus, producers’ surplus and interpret the total
of consumers’ surplus and producers’ surplus

Answer 1

If we have pure competition then demand function equals to supply function

25- $2Q = 2Q + 1$

4Q=24

$Q = 6$

So the equilibrium price $Q = 6$ , then demand equals to supply and equals to 13

So if we plot the graph then the area of ABC is consumers surplus, area of ACD producers surplus Point B have coordinates (0, 25) Point C (0, 13) Point A (6, 13) Point D (0, 1)

Then consumers surplus is equal to $0.5 * 12 * 6 = 36$ producers surplus $0.5 * 12 * 6 = 36$

we get the same surplus for consumer and producer