The estimated market demand function for electric vehicles (E) is QE = 200 - 6P + 5Y, and the supply function is QE = 100+4pE. A. Solve for equilibrium price and quantity in the market for electric vehicles. The price of electric vehicles is PE and household income is Y. Currently household income, Y, is 40 (all dollar amounts are in thousand dollars). B. At the market equilibrium, what is consumer surplus? FYI: Use 40 in your calculations, not 40,000. Also, your equilibrium price and quantity results will also be in thousands. FYI: Since this is a straight-line demand curve, consumer surplus is the area of a triangle. Area of triangle =(base*height)/2 C. Suppose that household income increases from 40 to 44 (thousand dollars). What is consumer surplus in the market for electric vehicles at the new equilibrium? FYI: With the increase in household income, the demand curve will shift out (electric vehicle is a normal good). The shift in demand leads to a new market equilibrium, and hence a different amount of consumer surplus. D. In a diagram, please draw the original (inverse) demand function and the supply function. Note the original equilibrium. Then draw the new (inverse) demand function after the increase in income. Note the new equilibrium. Shade in the consumer surplus for both equilibria.
The estimated market demand function for electric vehicles (E) is QE = 200 - 6P + 5Y, and the supply function is QE = 100+4pE. A. Solve for equilibrium price and quantity in the market for electric vehicles. The price of electric vehicles is PE and household income is Y. Currently household income, Y, is 40 (all dollar amounts are in thousand dollars). B. At the market equilibrium, what is consumer surplus? FYI: Use 40 in your calculations, not 40,000. Also, your equilibrium price and quantity results will also be in thousands. FYI: Since this is a straight-line demand curve, consumer surplus is the area of a triangle. Area of triangle =(base*height)/2 C. Suppose that household income increases from 40 to 44 (thousand dollars). What is consumer surplus in the market for electric vehicles at the new equilibrium? FYI: With the increase in household income, the demand curve will shift out (electric vehicle is a normal good). The shift in demand leads to a new market equilibrium, and hence a different amount of consumer surplus. D. In a diagram, please draw the original (inverse) demand function and the supply function. Note the original equilibrium. Then draw the new (inverse) demand function after the increase in income. Note the new equilibrium. Shade in the consumer surplus for both equilibria.
Chapter4: Supply And Demand: An Initial Look
Section: Chapter Questions
Problem 8TY
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Transcribed Image Text:PRE-PROBLEM #8: Welfare Analysis
The estimated market demand function for electric vehicles (E) is QE = 200 - 6pE + 5Y,
and the supply function is QE = 100 + 4PE-
A. Solve for equilibrium price and quantity in the market for electric vehicles. The price
of electric vehicles is på and household income is Y. Currently household income, Y, is
40 (all dollar amounts are in thousand dollars).
B. At the market equilibrium, what is consumer surplus?
FYI: Use 40 in your calculations,
not 40,000. Also, your equilibrium
price and quantity results will also
be in thousands.
FYI: Since this is a straight-line
demand curve, consumer surplus
is the area of a triangle.
Area of triangle =(base*height)/2
C. Suppose that household income increases from 40 to 44 (thousand dollars). What is
consumer surplus in the market for electric vehicles at the new equilibrium?
FYI: With the increase in
household income, the demand
curve will shift out (electric
vehicle is a normal good). The
shift in demand leads to a new
market equilibrium, and hence a
different amount of consumer
surplus.
D. In a diagram, please draw the original (inverse) demand function and the supply
function. Note the original equilibrium. Then draw the new (inverse) demand
function after the increase in income. Note the new equilibrium. Shade in the
consumer surplus for both equilibria.
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