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Unformatted text preview: Economics 111: Intermediate Microeconomics Spring 2008 Homework 5 Professor: Pedro Dal B 1. Meaningless controversies: Suppose that the market for widgets can be described as follows: Demand: D(p)=10-p. Supply: S(p)=p. a. What is the perfect competitive equilibrium price and quantity? In equilibrium: S ( p ) = D ( p ) , then p = 10 p and p = 5 and q = 5 . b. What is the consumer surplus, producer surplus and deadweight loss? Show all these graphically. CS = (10 5) 5 2 = 12 . 5 P S = 5 5 2 = 12 . 5 T S = CS + P S = 25 No deadweight loss. 10 9 8 7 6 5 4 3 2 1 10 9 8 7 6 5 4 3 2 1 q p q p CS* PS* q* p* 1 c. The Populist Party wins the election and as their f rst anti-business policy decides to charge producers $2 per widget produced. What will the new equilibrium quantity be? What price will the consumers play? What price will the producers receive? Now S ( p c 2) = D ( p c ) where p c is the price that consumers pay in equilibrium....
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