Answer:
Consumers surplus = $4
Producers surplus = $4
Explanation:
Quantity demanded = Quantity supplied (when there is equilibrium).
Given:
Demand function: PX = 10 -2Q
Supply function: PX = 2 + 2Q
We first solve the equation:
10 - 2Q = 2 + 2Q
Bringing like terms, we have:
2Q + 2Q = 10 -2
4Q = 8
Q = 2
Substituting 2 for Q in the demand function, we have:
P = 10 - (2 x 2) =
= 10 - 4 = 6
(When Q=2, P will be 6)
Therefore, from the demand function, when Q = 0, P = 10
Therefore, consumer's surplus will be:
CS = (1/2) x ($10 - $6) x 2 =
=(1/2) x 4 x 2 = $4
From supply function, When Q = 0, P = 2 (Minimum acceptable price)
Therefore, producer's surplus will be:
PS = (1/2) x ($6 - $2) x 2
= (1/2) x 4 x 2 = $4
The computation of the surplus received by consumers and producers are:
Consumers surplus = $4
Producers surplus = $4
Quantity demanded = Quantity supplied (when there is equilibrium).
Given:
Demand function: PX = 10 -2Q
Supply function: PX = 2 + 2Q
We first solve the equation:
10 - 2Q = 2 + 2Q
Collecting like terms, we have:
2Q + 2Q = 10 -2
4Q = 8
Q = 2
Substituting 2 for Q in the demand function, we have:
P = 10 - (2 x 2)
= 10 - 4
= 6
(When Q=2, P will be 6)
Therefore, from the demand function, when Q = 0, P = 10
Consumer surplus is defined as the difference between the consumers' willingness to pay for a commodity and the actual price paid by them.
Therefore, consumer's surplus will be:
CS
= (1/2) x ($10 - $6) x 2
= (1/2) x 4 x 2
= $4
From supply function, When Q = 0, P = 2 (Minimum acceptable price)
Producer surplus is defined as the difference between the amount the producer is willing to supply goods for and the actual amount received by them.
Therefore, producer's surplus will be:
PS
= (1/2) x ($6 - $2) x 2
= (1/2) x 4 x 2
= $4
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