1.                consumer surplus

1. Suppose the market demand and supply (bottles/month) for bottled water are given by:

Qd = -150P + 1500

Qs = 450P – 300

where Qd is the market demand, Qs is the quantity supplied and P is price of a 1Lt bottled water. The market is assumed to be competitive.

(a)    Write the inverse demand function

(b)   Write the inverse supply function

(c)    Sketch a demand curve for this market

(d)   Sketch a supply curve for this market

(e)   Calculate the equilibrium price and quantity

(f)     Show the consumer surplus and producer surplus

(g)    Calculate the Consumer Surplus (CS) and Producer Surplus (PS)

(h)   What is the value of social welfare (the sum of CS and PS)?

(i)      Consider a hypothetical policy initiative in the bottled water market that forces price up to $6.50 per unit. Calculate the deadweight loss to society from this policy. Indicate the deadweight loss in a diagram.

consumer surplus

 

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1. The quantity demanded for a product is given by the equation:

Q^d = 250 – 5P

Where Q^d is quantity demanded and P is the price. The supply equation for the industry is:

Q^S = 150

(a)    Sketch the demand and supply curves.

(b)   Indicate on your diagram the equilibrium price.

(c)    State the equilibrium condition for this market.

(d)   Use the demand and supply equations and the equilibrium condition to calculate the equilibrium price and quantity.

(e)   What is unusual about this market? Give an example of a good or service that might be characterised in this way.

 

consumer surplus

 

1. Suppose the inverse demand function (expressed in dollars) of a product is

P = 120- 2q

and the marginal cost (in dollars) of producing it is

MC = 1q

where P is the price of the product and q is the quantity demanded and/or supplied.

(a)    How much would be supplied in a static efficient allocation?

(b)   What would be the magnitude of the net benefits (in dollars)?

 

consumer surplus

One of the biggest challenges to measuring the environment is dealing with values that are not revealed in a market.  This has led to different techniques like the Contingent Valuation Method and Choice Modelling.  Regardless of approach or method, an enduring problem has been that state-preference techniques like these give very different values depending on whether questions are presented as ‘willingness to pay’ or ‘willingness to accept’.  Explain why the values might be different and which gives rise to the larger environmental values (350 words)