Unformatted text preview: up good X by 25% from $10 to $12.5 and sell 16 units and mark up Y by 12.5% and sell 22.5 units. Consumption of both goods falls by 25 per cent. At these prices and quantities, selling X results in surplus of $40 and selling Y in a surplus of about $60. DWL from producing X = 0.5 × 2.5 × 4 = 5.0 and DWL from producing Y = 0.5 × 2.25 × 7.25 = 8.2. The total DWL =13.2. DWL would be higher if the agency used other mark-ups to obtained surplus of $100. To obtain $100 surplus from X alone, it would have to double price of X to $20 and sell only 10 units, with a DWL = $50. If agency obtained $100 surplus from Y alone, it would increase price of Y to about $25.5 and sell only about 18 units, with DWL = about $34....
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This note was uploaded on 12/02/2009 for the course ECOS a taught by Professor A during the Three '09 term at University of Sydney.
- Three '09