problem+set+5+solutions - Econ 1, Fall 2010 University of...

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Unformatted text preview: Econ 1, Fall 2010 University of California, Berkeley P Note that none of the questions in thi to solve them. Any graphs that appea their equilibria, and the attendant co In the central part of the state of Euphor University. [Avicenna is a corruption Abu Ali al-Husayn ibn Abd Allah ibn Sina geologist, psychologist, theologian, math For the next several questions, we will l 1. Suppose that the quantity of espress ( Q S ) are given by the equations: Q D = 10,000 - 1000 P P Q S = -5000 + 4000 P P where P is the price of an espresso-b CS PS P Problem Set #5 Solutions is problem set requested graphs, and indeed g ar in these solutions are to help illustrate the r onsumer and producer surpluses. They are no ria there is a small city, Avicenna, which is the hom of the Arabic Ibn Sina, the byname of the great ele a: academic administrator, Quran reciter, astrono thematician, physicist, physician, poet, and paleon look at the daily market for espresso-based drinks so drinks demanded ( Q D ) and the quantity of espr P = 10 0.001 Q D P = 1.25 + 0.00025 Q S based drink in dollars. Problem Set 5 Solutions Page 1 of 23 graphs are not needed respective markets, ot necessary. me of Euphoric State leventh-century Iranian omer, chemist, tologist.] s in Avicenna. resso drinks supplied Econ 1, Fall 2010 Problem Set 5 Solutions University of California, Berkeley Page 2 of 23 a. What is the market equilibrium price? The equilibrium price, P *, is the price at which the quantity supplied equals the quantity demandedwhere Q S = Q D . Thus: -5000 + 4000 P * = 10,000 1000 P * 5000 P * = 15,000 P * = 3 The equilibrium price of espresso drinks in this market is $3. b. What is the market equilibrium quantity? At the equilibrium price, the equilibrium quantity of espresso drinks exchanged is given by either the quantity supplied or the quantity demanded: by definition the market equilibrium occurs where these two are the same. Given the equilibrium price found in part a, we have: Q S = -5000 + 4000(3) = 7000 Q D = 10,000 1000(3) = 7000 The equilibrium quantity of espresso drinks exchanged in this market is 7000. c. What is the producer surplus? The producer surplus (PS) is equal to the area of above the supply curve and below the equilibrium price. That is, in this case it is equal to the area of a triangle with height (3 1.25) and base 7000. The producer surplus is thus: g.GG = g _ The producer surplus is equal to $6,125. d. What is the consumer surplus? The consumer surplus (CS) is equal to the area of below the demand curve and above the equilibrium price. That is, in this case it is equal to the area of a triangle with height (10 3) and base 7000. The consumer surplus is thus: GG = , _ The consumer surplus is equal to $24,500. Econ 1, Fall 2010 Problem Set 5 Solutions University of California, Berkeley Page 3 of 23 2. Now suppose that PDC becomes alarmed at the number of strokes that are being treated at the public...
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This note was uploaded on 10/04/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at University of California, Berkeley.

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problem+set+5+solutions - Econ 1, Fall 2010 University of...

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