Market Supply

1. Using the graph shown, determine the numerical value of each of the following: (9 points)

a. equilibrium price before the tax

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b. consumer surplus before the tax

c. producer surplus before the tax

d. total surplus before the tax

e. consumer surplus after the tax

f. producer surplus after the tax

g. total tax revenue to the government

h. total surplus (consumer surplus + producer surplus + tax revenue) after the tax

i. deadweight loss


image2.png PART B. EXTRA CREDIT. You are not obligated to do this section. To obtain full extra credit, you must show all of your work for problems requiring calculations.

EC1. Suppose there are 8,000 identical individuals in a market for Latin dance videos, each with a demand function represented by Qdx=12 – 2Px , and 400 identical producers of Latin dance videos, each with a supply function represented by Qsx=10Px . (18 Points Maximum for Parts a-d)

a. Find the market demand and market supply function for Latin Dance Videos. ( 2 points)

b. Using algebra, obtain the market equilibrium price and equilibrium quantity for Latin dance videos. (4 points) (use additional sheets of paper as necessary)


c. Derive the market demand and market supply schedule for dance videos at prices ranging from $1 to $6 and sketch the market demand and market supply curves and label the equilibrium price and quantity. (4 points) (use additional sheets of paper as necessary)

d. Use the Demand equation to find the price elasticity of demand. Is the price elasticity demand elastic or inelastic? (4 Points)

e. Interpret the elasticity of demand and state by how much quantity in demand would fall if price for dance videos would increase by 2% (2 Points)

EC2. Suppose the market for fine dining in Los Angeles is described by the following supply and demand equations:

Qs = 3P

Qd = 400 – P

Suppose a Tax of T is placed on restaurant goers, so the new demand equation is

Qd=400-(P + T)

solve for the equilibriumand state (1) the price received by restaurant owners, (2) the price paid by restaurant goers, and (3) the quantity of restaurant meals sold. (6 Points)

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