Find the value of producer surplus received by dive shops

Question

Problem

1. Holding price and quantity constant, why does the consumer surplus from a product decline if the demand curve becomes more elastic?

2. The Ministry of Tourism in the Republic of Palau estimates that the demand for its scuba diving tours is given by Q^D= 6,000 - 20P, where Q is the number of divers served each month and P is the price of a two-tank dive. The supply of scuba diving tours is given by Q^S = 30P - 2,000.

a. Solve for the equilibrium price and quantity.

b. Find the value of the consumer surplus received by divers visiting Palau. (Hint: It may help to draw a graph.)

c. Find the value of producer surplus received by dive shops. (Hint: It may help to draw a graph.)

d. Suppose that the demand for scuba diving services increases, and that the new demand is given by Q^D = 7,000 - 20P. Calculate the impact of this change in demand on the values you calculated in parts (a) through (c).

e. Are consumers better off or worse off as a result of the demand increase?

The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.