Question -
1. Consider the market for smart phones. Initially the market demand for these phones is given as P = 500 - .005Q and the market supply for these phones is given as P = .005Q. For all questions in this problem make sure you show your work and not just your final answer.
a. Given this information, what is the equilibrium price and equilibrium quantity of smart phones in this market?
b. What is the value of consumer expenditure on smart phones given this initial information?
c. What is the value of consumer surplus in the market for smart phones?
d. What is the value of producer surplus in the market for smart phones?
Now, suppose that tastes and preferences for smart phones changes so that at every price an additional 20,000 phones are demanded.
There are no changes in the market supply curve.
e. Given this information, what is the new equilibrium price and equilibrium quantity of smart phones in this market?
f. Given this new information, what is the value of consumer expenditure on smart phones in this market?
g. What is the new value of consumer surplus in the market for smart phones given this change in tastes and preferences?
h. What is the new value of producer surplus in the market for smart phones given this change in tastes and preferences?