1. Suppose that the market demand curve is given by Qd = 210 - 3P and the market supply curve is given by Qs = 4P.
(a) What are the market equilibrium Price and Quantity?
(b) Calculate Consumer Surplus and producer Surplus.
(c) What is the deadweight loss that would result if the government were to institute a price cap of 20 in this market?
2. The following linear demand supply curves represent rental housing market in the Fairfax and Loudoun County in 2016.
Qs = 5,000 + 53R - 0.1HI - 13,000PT
Qd = 25,000 - 70R + 0.5HI
where R is the average rent
HI is the average household income ($150,000)
PT is the property tax per $1,000 ($1)
(a) Suppose that HI is $150,000 and PT is $1, what is the market equilibrium rent and the number of rental properties rented.
(b) The County authorities decided to impose a ceiling price (maximum rent) at $800, what would be the market shortage (in terms of the number of rental property)?
(c) How much of public funding is necessary to support this rent subsidy program that has the ceiling price at $800 in the Counties.
(d) Calculate the elasticity of demand for rental housing with respect to the rent price. Use the two demand figures when the rent is $900 and $1100, respectively. Why might a policy maker find this information useful?
3. Solve the following questions.
a) Given the demand and supply equations below for the pesticide product, "Kill-Them-All", first find the equilibrium price and quantity (quantity is in 10,000 bags).
P = 180 - Q (Demand)
P = 60 + 3Q (Supply)
(b) The company decides to produce environment-friendly pesticide "No Kill" to avoid pollution tax/fee and the new demand and supply equations are as follows. Find the new equilibrium price and quantity (quantity in 10,000 bags).
P = 200-Q (Demand)
P = 60+6Q (Supply
(c) Pollution tax/fee is $15 per bag. The cost of producing the traditional pesticide product (Kill-Them-All) is $60 per bag and the environment-friendly pesticide product is $80 per bag. By comparing the profit (total revenue - total cost), evaluate whether the company should produce the environment-friendly pesticide or not.
(d) What would be an appropriate pollution tax/fee that will allow the company to produce the environment-friendly pesticide?
(e) Provide your qualitative answer to this question. If the traditional pesticide producer is a monopoly with market power, would a pollution tax/fee be effective to affect the firm's production decisions?