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Solution:
We get the market equilibrium price when we equal both equations( supply and
demand)
2580-194P=1800+240P
Then
Pe = $1.7972
1. We get the market equilibrium price when we substitute the last p into the
demand equation, that is
Qs=1800+ 240 P
when P=-.5
And by making p equals 0 we get that the intercept with the x axis occurs at
Q1=1800
Q2=2580
When the government fixes the price floor at p=3.20 the
QS =2568
QD =1959.2
and
Also, when the government fixes a limited domestic supply of 2425 the new
price becomes approximately 2.60. We get this value by equals 2425 to the
supply equation and then solving for P, that is:
2425=1800+240P, p=(2425-1800)/240=2.60. Then the height of the triangle
FEG is EF which is equals to 3.20-2.60=0.60
By using the graph above we get the following values:
JQ= 2231.3
KD=1800
BG=2568
KB=3.20
FG= Q S 2425 =143
EF=0.60
JK=
Pe =1.79
JQ= Q e =2231.3
BC=1959.2= quantity supplied at price floor
AB=13.29-3.20=10.09
Let us define the following areas: (AJQ) = Initial consumer surplus, (KDQJ) =Initial
producer surplus, (ABC) = consumer surplus after government intervention, and
producer surplus after government intervention is (KDGB)-(FEG).
(AJQ)=
(KDQJ)=
JQxAJ
=12829.975
2
JKx( KD+ JQ)
=3608.0135
2
ABxBC
=9884.16 . Which means a loss in consumer surplus of $$2945.815 (Initial
2
consumer surplus- consumer surplus after government intervention)
Now let us analyze the change in producer surplus:
(KDGB)-(FEG)=