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Question
https://bbhosted.cuny.edu/bbcswebdav/pid-24223223-dt-content-rid-1 17220529-1/courses/BMC01-ECO-202-1701-1162-1/Problem-Set-3.D3.pdf Ever thJeff Primack-YouTub New Tab A Keyword Planner-G: G how to do meditatic D Health Benefits of Gir Ginger Beats Drugs l . Ginger Beats Drugs I O LES BROWN Other bookmarks Problem Set 3.D3.pdf Question 2: (worth 25%) Assume that a competitive cell phone market has a demand curve described by the equation P = 400-25Q and a supply curve described by P = 30-120 2(a). What are the consumer and producer surpluses in this market? 2(b). What is the deadweight loss (DWL) if a price ceiling is set at Pmar $90? 2(c). Does either the consumer or producer surplus incre ase with the price ceiling imposed in 2(b)? Be sure to show your calculations and reasoning 2016-05-11 15-38-23.png 2016-05-11 15-38-04.png 2016-05-05_13-15-21.png 2016-05-05_13-15-07.png Show all downloa 10:13 AM 5/12/2016Explanation / Answer
Answer:
Demand curve: P = 400 -25Q
Supply curve: P = 30 – 12Q
Now we can equal to demand and supply curves to know the price (P).
400 -25Q = 30 – 12Q
13Q = 370
Q = 28
Therefore, P = 311
a) What are the consumer and producer surplus in this market?
CS = (1/2)(400 - 370)(28)
= $1,246
PS = (1/2)(370-30)(28)
= $4,760
b) What is the deadweight loss (DWL) if a price ceiling is set at Pmax = $90
DWL = (1/2)(28)(90)
= $1260
c) Does either the consumer or producer surplus increase with the price ceiling imposed in (b)? Be sure to show your calculations and reasoning.
Price ceilings are intended to benefit the consumer and set a maximum price for which the product may be sold. To be effective, the ceiling price must be below the market equilibrium. The result is that more individuals want to supply given the lower price, but producers are not willing to supply as many goods to the market (i.e., a lower quantity supplied).
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