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Unformatted text preview: Eco 405 Assignment 5 (Due Mar. 26, Wednesday) 1. Suppose you are in charge of a toll bridge that costs essentially nothing to operate. The demand for bridge crossings Q is given by P = 15- 1 2 Q . a. Draw the demand curve for bridge crossings. The demand curve is linear and downward sloping. The vertical intercept is 15 and the horizontal intercept is 30. b. How many people would cross the bridge if there were no toll? At a price of zero, the quantity demanded would be 30. c. What is the loss of consumer surplus associated with a bridge toll of $5? If the toll is $5 then the quantity demanded is 20. The lost consumer surplus is the area below the price line of $5 and to the left of the demand curve. The lost consumer surplus can be calculated as (5*20)+0.5(5*10)=$125. d. The toll bridge operator is considering an increase in the toll to $7. At this new higher price, how many people would cross the bridge? Would the toll bridge revenue increase or decrease? What does your answer tell you about...
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- Spring '08