Equilibrium market price

Question

In a perfectly competitive market, market demand curve is provided by Q^d = 200 − 5P^d, and the market supply curve is provided by Q^d = 35P^s.

a) Determine the equilibrium market price and quantity demanded and supplied in the lack of price controls.

b) Assume that a price ceiling of $2 per unit is imposed. Determine the quantity supplied with a price ceiling of this scale? Determine the size of the shortage made by the price ceiling?

c) Determine the consumer surplus and producer surplus in the lack of price ceiling. Determine the total economic benefit in the lack of price ceiling?

d) Determine the consumer surplus and producer surplus beneath price ceiling. Suppose that rationing of limited good is as proficient as possible. Determine the total economic benefit in this condition? Does the price ceiling outcome in a deadweight loss? If so, how much is it?

Answer 1

a) P^d = P^s = $5; Q^d = Q^s = 175 units.

b) Q^s= 70 units.

c) The surplus implications of a price ceiling are illustrated below.