Demand supply numerical 3_Fall 2010

Demand supply numerical 3_Fall 2010 - Econ 2100 Fall 2010...

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1 Econ 2100. Fall 2010. Vivek Ghosal Demand Supply Numerical #3. Let demand for marijuana be given by: P = 500 – Q Let the supply of marijuana be given by: P = 50 + 0.5Q 1. Assuming that the product can be transacted legally, find the market equilibrium price and quantity transacted. Also calculate the consumer surplus, producer surplus and total welfare. 2. Let the Government declare marijuana illegal and impose a fine of $150/unit on the seller. Find the market equilibrium price and quantity transacted. Also calculate the consumer surplus, producer surplus and total welfare. 3. The Govt is unhappy that still far to many people are consuming marijuana. They impose a fine of $50/unit on the buyer. Find the market equilibrium price and quantity transacted. Also calculate the consumer surplus, producer surplus and total welfare. 4. Suppose the Govt were to impose jail terms for those getting caught buying or selling. Would this drive the quantity transacted to zero?
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Demand supply numerical 3_Fall 2010 - Econ 2100 Fall 2010...

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