Question

Suppose the demand curve is: P = 300 - 2QD and the supply curve is: P = 100 + 3QS. What is the sum of the consumer and producer surplus in the market at the equilibrium price and quantity?
A. $3200
B. $1600
C. $2400
D. $4000
E. Cannot be determined from the information given.

Answer 1

Answer:

Total surplus =  4000

so correct option is D. $4000

Explanation:

given data

P = 300 - 2QD  

P = 100 + 3QS  

to find out

sum of the consumer and producer surplus

solution

we first equating both  as equilibrium at QD = QS

so

300 - 2Q = 100 + 3Q

solve we get

Q = 40

so P will be

P = 3 00 - 2 × 40

P = 220

Consumer surplus  area above price and below demand  so

Consumer surplus   = 0.5 × (300 - 220) ×  40

Consumer surplus   = 1600

and

Producer surplus  area above supply curve and below price so

Producer surplus = 0.5 × (220 - 100) × 40

Producer surplus = 2400  

so Total surplus will be

Total surplus = Consumer surplus + Producer surplus  

Total surplus = 1600 + 2400

Total surplus =  4000

so correct option is D. $4000