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9_Solutions

# 9_Solutions - College of Human Ecology Cornell University...

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College of Human Ecology Cornell University, Ithaca, New York Department of Policy Analysis and Management PAM 200 Intermediate Micro A. Sinan ¨ Un¨ur – Fall 2007 Quiz 9 – Answers November 1, 2007 Short Answer: Answer briefly and only what is being asked. Make sure your writing is legible. Questions Suppose the demand for gasoline is given by P D = 100 - Q and the suppply of gasoline is given by P S = Q / 19 . Q1 ) Find the equilibrium output and price levels in this market. To find the equilibrium output level, we equate the price consumers are willing to pay to the price producers are willing to charge: 100 - Q = Q 19 . Solving this equation yields Q = 95 and P = \$5/gallon. Q2 ) Find the total consumer surplus, total producer surplus and total surplus in this market. We have, CS = 95 × 95 2 , PS = 5 × 95 2 and TS = 1 2 ( 100 × 95 ) = 4750 . It is useful to sketch the market equilibrium even if you are not asked to:

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Q3 ) Suppose all the firms in the market are compelled to make a contribution to an ad campaign
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