ECON 101 Midterm: ECON 101 IA State Exam1 F98

Individuals A and B are the only consumers of good X. Individual A demand for good X is given by Q = 4 - P and individual B demand for good X is given by Q = 8 - 2P. The supply for good X is given by MC = 3. Assume good X is a (pure) public good. Let Lindahl price for individual A equal to individual A valuation (P) of quantity Q* and Lindahl price for individual B equal to individual B valuation (P) of quantity Q*. Individual A will be charged ________ and individual B will be charged __________ for the same equilibrium quantity Q* of the public good they both consume. (NOTE: Write your answer in number format, with 2 decimal places of precision level; do not write your answer as a fraction. Add a leading zero and trailing zeros when needed. Use a period for the decimal separator and a comma to separate groups of thousands. HINTS: Sketch the Marshallian cross€ diagram of supply and demand to help you answer this question. To find the Lindahl prices, substitute Q* in each individual demand and, for each, solve for P.) Show all steps.

Suppose that the demand for broccoli is given by:

Demand: Q= 1,000 - 5P

Where Q is quantity per year measured in hundreds of bushels and P is price in dollars per hundred bushels. The long-run supply curve for broccoli is given by

Supply: Q= 4p - 80

A) Show that the equilibrium quantity here is Q=400. At this output, what is the equilibrium price? How much in total is spent on broccoli? What is consumer surplus at this equilibrium? What is producer surplus at this equilibrium?

B) How much in total consumer and producer surplus would be lost if Q=300 instead of Q=400?

C) Show how the allocation of the loss of total consumer and producer surplus between suppliers and demanders described in part b depends on the price at which broccoli is sold. How would the loss be shared if P=140? How about if P=95?

D) What would the total loss of consumer and producer surplus be if Q=450 rather than Q=400? Show that the size of this total loss also is independent of the price at which the broccoli is sold.

E) Graph your results.

I would greatly appreciate a systematic approach on how I should attack this information. I'm not sure what I'm solving for or what is simply given.

we have charted a demand curve D1 whose equation is Q = 27 - 3P. The equation for the supply curve S1 is Q = -5 + 5P. The resulting equilibrium price is $4 and quantity is 15 units (point 1).8 If we chart another, considerably more elastic, demand curve, D2, of the form Q = 55 - 10P, with the same supply curve, the equilib- rium point will be the same, Q = 15, and P = 4. Now, let us say that supply increases, and the supply curve S2 is of the form S = 0 + 5P. With the new supply curve, the equilibrium points for the two demand curves will no longer be the same. With D1 the price will be $3.375 and quantity 16.875 units (point 2). However, with D2 the result will be P = 3.667 and Q = 18.333 (point 3). The more elastic demand curve, D2, has resulted in a smaller price decrease but a larger quantity increase than D1, the less elastic curve.