Qd = -0.25P+10 Qs = 0.5P-5 What is the consumer surplus? a 25 b 50 c 75 d 100 What is the total surplus? a 25 b 50 c 75 d 100

Qd = -0.25P+10 Qs = 0.5P-5 What is the consumer surplus? a 25 b 50 c 75 d 100 What is the total surplus? a 25 b 50 c 75 d 100

 

 

Answer:

At equilibrium, Qd = Qs
Subtracting equation 2 from equation 1
Q = -0.25P +10
Q = 0.5P – 5
0 = -0.75P +15

Solving for P
0.75P = 15
P = 15/0.75
P = 20

Solving for Q
Q = 0.5P – 5
Q = 0.5*20 – 5
Q = 10 – 5
Q = 5

At equilibrium, Q = 5 and P = 20

For calculating, consumer and producer surplus, plotting the graph using demand and supply equations and equilibrium point

Demand Equation
Q = -0.25 P +10

Q 0 10
P 40 0

Supply equation
Q = 0.5P – 5

Q 0 -5
P 10 0

The Graph:

Note: This figure is representative, not exact

Consumer Surplus = Area of green triangle
1/2 * b * h
where b = 40-20 = 20 and h = 5
= 1/2 * 20 * 5 = 50
So, the answer is option b = 50

Total Surplus = Area of Green + Blue Triangle
1/2 * b * h
where b = 40-10 = 30 and h = 5
= 1/2 * 30 * 5 = 75
So, the answer is option c = 75

Asked on February 13, 2018 in economics.
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