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Eco_1_Problem_Set_3_akey

# Eco_1_Problem_Set_3_akey - Problem Set 3 Answer Key Price...

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Price per drum of lubricant Quantity of drums of lubricant 0 D 1 S 1 4 36 12 6 10 Problem Set 3 Answer Key

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a) Find the corners of the demand curve by setting price equal to 0 and determining the quantity demanded. Then determine what price would result in 0 demand Repeat for Supply Then set Q D = Q S : 36 – 3P* = -4 + P* to find the market equilibrium price. Solve for P* to find P* = 10 Put P* into either Q D or Q S to find Q* = 6 (remember they are the same at equilibrium – that’s why we set them equal to one another
Price per drum of lubricant Quantity of drums of lubricant 0 D 1 S 1 36 6 Remember what goes where – this is most important 4 12 10

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Price per drum of lubricant Quantity of drums of lubricant 0 D 1 S 1 36 6 CS = .5(12-10)(6-0) = 6 PS = .5(10-4)(6-0) = 18 b) And c), consumer and producer surplus 4 12 10
Price per drum of lubricant Quantity of drums of lubricant 0 D 1 S 1 36 6 d) Economic inefficiency means dead weight loss . There is no DWL at the market equilibrium because Economic Surplus (CS + PS) is at a maximum 4 12 10

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Price per drum of lubricant Quantity of drums of lubricant 0 D 1 S 1 36 3 S 2 e) tax! Time for a new equilibrium. Set Q D = Q S : 36 – 3P* = -4 + (P*-4) to find the new market equilibrium price.
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