Suppose the market demand and supply (bottles/month) for bottled water are given by:
Qd = -150P + 1500
Qs = 450P – 300
where Qd is the market demand, Qs is the quantity supplied and P is price of a 1Lt bottled water. The market is assumed to be competitive.
(a) Write the inverse demand function
(b) Write the inverse supply function
(c) Sketch a demand curve for this market
(d) Sketch a supply curve for this market
(e) Calculate the equilibrium price and quantity
(f ) Show the consumer surplus and producer surplus
(g) Calculate the Consumer Surplus (CS) and Producer Surplus (PS)
(h) What is the value of social welfare (the sum of CS and PS)?
(i) Consider a hypothetical policy initiative in the bottled water market that forces price up to $6.50 per unit. Calculate the deadweight loss to society from this policy. Indicate the deadweight loss in a diagram