Answer: $3750
Explanation:
From the question,
Qd = 800 - 10p
Qs = 50p - 1000.
To attain equilibrium, Qd = Qs
800 - 10p = 50p - 1000.
Collect like terms
800 + 1000 = 50p + 10p
60p = 1800
p = 1800/60
p = $30.
Equilibrium price = $30
Equilibrium quantity:
= 800 - 10p
= 800 - (10 × 30)
= 800 - 300
= 500 units.
When the government has imposed a price ceiling of $25, this will lead to excess demand in the market as buyers will want to buy more plywood.
When P = $25,
Qd = 800 - 10p
Qd = 800 - (10 × 25)
Qd = 800 - 250
Qd = 550 units.
Qs = 50p - 1000
Qs = (50 × 25) - 1000
Qs = 1250 - 1000
Qs = 250 units.
When quantity demanded Qd = 250,
Qd = 800 - 10p
250 = 800 - 10p
Collect like terms
10p = 800 -250
10p = 550
p = 550/10
p = $55.
Deadweight loss is shown by the shaded area in the attached file.
Size of the dead weight triangle will be:
= 1/2 × base × height.
= 1/2× (55-25) × (500-250)
= 1/2 × 30 × 250
Dead weight loss = $3750.
