Multiple Choice
The supply and demand curves for a product are as follows. What is consumer surplus in this market?
QD = 45 – 2P
QS = -15 + P
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5. Consumer and Producer Surplus; Price Ceilings and Price Floors
Quantitative Analysis of Consumer and Producer Surplus at Equilibrium
Multiple Choice
The supply and demand curves for a product are as follows. What is producer surplus in this market?
QD = 45 – 2P
QS = -15 + P
A
6.25
B
12.5
C
15
D
20
E
25
Verified step by step guidance1
Identify the equilibrium price and quantity by setting the quantity demanded (QD) equal to the quantity supplied (QS). This means solving the equation 45 - 2P = -15 + P.
Rearrange the equation to solve for the equilibrium price (P). Combine like terms to get 3P = 60, then solve for P.
Substitute the equilibrium price back into either the demand or supply equation to find the equilibrium quantity (Q). For example, use QD = 45 - 2P.
Calculate the producer surplus, which is the area above the supply curve and below the equilibrium price. This can be found using the formula for the area of a triangle: (1/2) * base * height, where the base is the equilibrium quantity and the height is the difference between the equilibrium price and the price at which the supply curve intersects the price axis.
Determine the price at which the supply curve intersects the price axis by setting QS = 0 and solving for P. Use this price to find the height of the triangle for the producer surplus calculation.
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