Question

Here are the supply and demand equations for throstles, where p is the price in dollars: D(p) = 40 − p S(p) = 10 + p 1. Draw the demand and supply curves for throstles using blue ink. 2. What is the equilibrium price? What is the equilibrium quantity? 3. Suppose that the government decides to restrict the industry to selling only 20 throstles. At what price would 20 throstles be demanded? How many throstles would suppliers supply at that price? At what price would the suppliers supply only 20 units? 4. The government wants to make sure that only 20 throstles are bought, but it doesn’t want the firms in the industry to receive more than the minimum price that it would take to have them supply 20 throstles. One way to do this is for the government to issue 20 ration coupons. Then in order to buy a throstle, a consumer would need to present a ration coupon along with the necessary amount of money to pay for the good. If the ration coupons were freely bought and sold on the open market, what would be the equilibrium price of these coupons? 5. On the graph, shade in the area that represents the deadweight loss from restricting the supply of throstles to 20. How much is this expressed in dollars?

Answer 1

Answer:

1. p*=15 ; q*=25

2. Only 20 units are supplied at p=10

3. The ration coupon will cost  10

Explanation:

Considering the following formulas given by the exercise:

D=40-p

S= 10+p

1) Equilibrium price from graph = 15

Equilibrium quantity from graph = 25

2) From the graph only 20 units are demanded at 20 while at p=20 supply is 30. Only 20 units are supplied at p=10

3) The ration coupon will cost 20-10 = 10