Exercise 1:

Demand function: QD = 1600 – 4P => P = 400 – 0.25QD

Supply function: QS = 2P – 200 => P = 0.5QS + 100
A, Let Pe be the price at equilibrium; Qe be the quantity at equilibrium
At equilibrium, we have QD = QS
Hence: 1600 – 4. Pe = 2. Pe – 200  6 Pe = 1800  Pe = 300
=> Qe = 2. Pe - 200 = 2*300 – 200 = 400
Therefore: the equilibrium price is 300$; equilibrium quantity is 400 (unit).
B, For demand function: Pmax = 400 when QD = 0
( P max−P e )∗Qe ( 400−300 )∗400
Consumer surplus= = =20,000 $
2 2
For supply function: Pmin = 100 when QS = 0
( Pe−Pmin )∗Qe ( 300−100 )∗400
Producer surplus= = =40,000 $
2 2
C, When the Government impose per-unit tax T = 75$, producer price will increase by 75$
per unit, producer quantity will decrease and consumer price will increase
New producer price Pt = P + T = 0.5Qs + 100 +75 = 0.5Qs +175 => QS = 2Pt – 350
We have the new demand – supply model:
Demand function: QDt = 1600 – 4Pt
Supply function: QSt = 2Pt – 350 => Pmin = 175$
 At equilibrium: QDt = QSt 2PEt – 350 = 1600 – 4PEt 6PEt = 1950  PEt = 325$
=> QEt = 2PEt – 350 = 2*325 – 350 = 300
Therefore,
( P max−Pet )∗Qet ( 400−325 )∗300
New consumer surplus= = =11,250 $
2 2
( Pet −Pmin )∗Qet ( 325−175 )∗300
New p roducer surplus= = =22,500 $
2 2
Tax revenue=T∗Qet=75∗300=22,500 $
Dead weight loss=Original social surplus−New social surplus−Tax revenue=20,000+ 40,000−22,500−22,500−

Exercise 2:
 Demand function: QD = 1500 – 3P => P = 500 – 1/3.QD
Supply function: QS = 2P – 500 => P = 0.5QS + 250
A, Let Pe be the price at equilibrium; Qe be the quantity at equilibrium
At equilibrium, we have QD = QS
Hence: 1500 – 3. Pe = 2. Pe – 500  5 Pe = 2000  Pe = 400
=> Qe = 2. Pe - 500 = 2*400 – 500 = 300
Therefore: the equilibrium price is 400$; equilibrium quantity is 300 (unit).
B, For demand function: Pmax = 500 when QD = 0
( P max−P e )∗Qe (500−400 )∗300
Consumer surplus= = =15,000 $
2 2
For supply function: Pmin = 250 when QS = 0
( Pe−Pmin )∗Qe ( 400−250 )∗300
Producer surplus= = =22,500 $
2 2
C, When the Government impose per-unit tax T = 50$, producer price will increase by 50$
per unit, producer quantity will decrease and consumer price will increase
New producer price Pt = P + T = 0.5Qs + 250 + 50 = 0.5Qs +300 => QS = 2Pt – 600
We have the new demand – supply model:
Demand function: QDt = 1500 – 3Pt
Supply function: QSt = 2Pt – 600 => Pmin = 300$
 At equilibrium: QDt = QSt 2PEt – 600 = 1500 – 3PEt 5PEt = 2100  PEt = 420$
=> QEt = 2PEt – 600 = 2*420 – 600 = 240
Therefore,
( P max−Pet )∗Qet ( 500−420 )∗240
New consumer surplus= = =9,600 $
2 2
( Pet −Pmin )∗Qet ( 420−300 )∗240
New p roducer surplus= = =14,400 $
2 2
Tax revenue=T∗Qet=50∗240=12,000 $
Dead weight loss=Original social surplus−New social surplus−Tax revenue=15,000+22,500−9,600−14,400−

Exercise 3:
 Demand function: QD = 8000 – 4P => P = 2000 – 0.25QD
Supply function: QS = P – 1000 => P = QS + 1000
A, Let Pe be the price at equilibrium; Qe be the quantity at equilibrium
At equilibrium, we have QD = QS
Hence: 8000 – 4. Pe = Pe – 1000  5 Pe = 9000  Pe = 1800
=> Qe = Pe - 1000 = 1800 – 1000 = 800
Therefore: the equilibrium price is 1800$; equilibrium quantity is 800 (unit).
B, For demand function: Pmax = 2000 when QD = 0
( P max−P e )∗Qe ( 2000−1800 )∗800
Consumer surplus= = =80,000 $
2 2
For supply function: Pmin = 1000 when QS = 0
( Pe−Pmin )∗Qe ( 1800−1000 )∗800
Producer surplus= = =320,000 $
2 2
C, When the Government impose per-unit tax T = 200$, producer price will increase by
200$ per unit, producer quantity will decrease and consumer price will increase
New producer price Pt = P + T = Qs + 1000 + 200 = Qs +1200 => QS = Pt – 1200
We have the new demand – supply model:
Demand function: QDt = 8000 – 4Pt
 Supply function: QSt = Pt – 1200 => Pmin = 1200$
At equilibrium: QDt = QSt PEt – 1200 = 8000 – 4PEt 5PEt = 9200  PEt = 1840$
=> QEt = PEt – 1200 = 1840 – 1200 = 640
Therefore,
( P max−Pet )∗Qet ( 2000−1840 )∗640
New consumer surplus= = =51,200 $
2 2
( Pet −Pmin )∗Qet ( 1840−1200 )∗640
New p roducer surplus= = =204,800 $
2 2
Tax revenue=T∗Qet=200∗640=128,000 $
Dead weight loss=Original social surplus−New social surplus−Tax revenue=80,000+320,000−51,200−204,80