Answered: • A market has the market supply…

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter7: Consumers, Producers, And The Efficiency Of Markets

Section: Chapter Questions

Problem 6PA

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Question

•
A market has the market supply equation as P = ½Q and
the demand equation as P = 6 ½Q, where P is price in
dollars and Q is the quantity.
•
•
•(a) Solve for the equilibrium price, the equilibrium quantity,
the consumer surplus and the producer surplus in the
market. Support your answers with a suitable market
diagram.
•
•
•(b) If there is a price ceiling of $2, compute the consumer
surplus, producer surplus and the deadweight loss in the
market. Support your answers with a suitable market
diagram.

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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