Question 2
Show all working and draw graphs indicating Consumer surplus, producer surplus and dead weight loss as required.
Suppose the demand curve is p = 80 − x and the supply curve is p = 4x.
1. What is the market equilibrium price and quantity?
2. How much is the consumer surplus and the producer surplus?
CS =______ and PS =_______
3. Suppose the government manipulates the price and fixes it to $90. How much is the dead weight loss?
DWL = ________
4. Instead of the price manipulation, the government introduces a per unit production tax, t = $1. What is the dead weight loss?
DWL = _________