Refer to Figure 4-1. If the market price is 2.00, what is ...

[imowrer]

Refer to Figure 4-1. If the market price is 2.00, what is Arnold's consumer surplus?
 
  A) 0.50 B) 1.00 C) 1.50 D) 3.00

Question 2

The demand and supply equations for the peach market are:
 
  Demand: P = 24 - 0.5Q
   Supply: P = -6 + 2.5Q
   where P = price per bushel, and Q = quantity (in thousands).
 
  a. Calculate the equilibrium price and quantity.
  b. Suppose the government guaranteed producers a price of 24 per bushel. What would be the effect on quantity supplied? Provide a numerical value.
  c. By how much would the 24 price change the quantity of peaches demanded? Provide a numerical value.
  d. Would there be a shortage or surplus of peaches?
  e. What is the size of this shortage or surplus? Provide a numerical value.

[phuda]

Answer to Question 1

A

Answer to Question 2

a. Quantity = 10 thousand bushels: 24 - 0.5Q = -6 + 2.5Q; 30 = 3Q; Q = 10
Price = 19: P = 24 - 0.5(10); P = 24 - 5; P = 19
b. Quantity supplied would increase to 12 thousand bushels: 24 = -6 + 2.5Q; 30 = 2.5Q; Q = 12
c. Quantity demanded would fall to zero bushels: 24 = 24 - 0.5Q; 0 = -0.5Q; Q = 0
d. There would be a surplus.
e. Surplus = 12,000 - 0 = 12 thousand bushels.