27 9. DEADWEIGHT LOSS WITH PRICE CONTROLS If an equilibrium position is less than perfectly efficient, the loss in total surplus (CS + PS) is termed "deadweight loss." If D and S are linear, then DWL is measured as the area a triangle, the "loss triangle." The area of a triangle is half of (base X height). > Suppose that demand and supply equations in a competitive market are: Demand: P = 30 – 0.6Q Supply: P = 6 + 0.4Q a. Compute the market equilibrium. (Q*, P*) = b. Calculate consumer surplus and producer surplus at the market equilibrium. Producer surplus (PS) is the area above the supply curve and below the price. CS* = PS* =. c. Suppose that a price floor of Pr = 24 is imposed by the government. Find the equilibrium quantity with the price floor. Then calculate consumer surplus, producer surplus, and deadweight loss at the regulated equilibrium. %3D %3D CS: = PS =- DWLr =

27 9. DEADWEIGHT LOSS WITH PRICE CONTROLS If an equilibrium position is less than perfectly efficient, the loss in total surplus (CS + PS) is termed "deadweight loss." If D and S are linear, then DWL is measured as the area a triangle, the "loss triangle." The area of a triangle is half of (base X height). > Suppose that demand and supply equations in a competitive market are: Demand: P = 30 – 0.6Q Supply: P = 6 + 0.4Q a. Compute the market equilibrium. (Q, P) = b. Calculate consumer surplus and producer surplus at the market equilibrium. Producer surplus (PS) is the area above the supply curve and below the price. CS* = PS* =. c. Suppose that a price floor of Pr = 24 is imposed by the government. Find the equilibrium quantity with the price floor. Then calculate consumer surplus, producer surplus, and deadweight loss at the regulated equilibrium. %3D %3D CS: = PS =- DWLr =

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter4: Markets In Action

Section: Chapter Questions

Problem 9SQ

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