Consider a market where demand is: P = 6 - Q and supply is S: P = Q.
1. Equilibrium quantity Qe is
a. 2
b. 3
c. 4
d. 5
2. Equilibrium price Pe is
a. $2
b. $3
c. $4
d. $5
3. Consumer surplus CS is
a. $0.5
b. $4.5
c. $12.5
d. $16.5
4. Producer surplus PS is
a. $0.5
b. $4.5
c. $12.5
d. $16.5
5. Total surplus TS is
a. $5
b. $7
c. $8
d. $9
Construct a budget neutral subsidy in the above market.
6. Quantity Q' is
a. 2
b. 3
c. 4
d. 5
7. Post-subsidy producer price Pp is
a. $2
b. $3
c. $4
d. $5
8. Consumer surplus CS is
a. $0.5
b. $4.5
c. $12.5
d. $16.5
9. Producer surplus PS is
a. $0.5
b. $4.5
c. $12.5
d. $16.5
10. Total surplus TS is (do not forget to account for the subsidy expenditure SE)
a. $5
b. $7
c. $8
d. $9