Lab 1

Willingness to pay, willingness to

accept & welfare
1. The profile of shrimp market in a particular fishing district is
defined by the amount of shrimp landings over a period of time. A
study reveals that the market is defined by the demand (DD)
function P = 20000-1130.5Q and supply (SS) function P =
3500+1120.2Q. Answer the following questions:
a. Using Excel, draw the graph to show the DD and SS
profiles of shrimp
b. Determine the willingness to pay (WTP) and
willingness to accept (WTA) of the market participants.
c. Determine the optimum quantity and price of shrimp
in the market.
d. Calculate the total welfare of the market participants by
estimating consumer and producer surpluses.
2. The initial consumers’ demand (DD) function for
freshwater fish is given by P = 25000-1520.5Q while
that of producers’ supply (SS) function is given by P =
5500+1538Q. [Both per thousand metric tons] A
survey revealed that as much as RM 1.50/kg was
unpaid by agricultural producers as a result of their
water-polluting pesticides application on crops.

Estimate the break-down of community’s welfare in the

area. Are they “better off”? Show the results in a graph.

3. Refer to Question 2. Despite water-polluting pesticides

application by farmers, demand for fish increases during
festive seasons. This increase is approximately
estimated as P = 5500+1538Q. Determine the new
equilibrium of demand and supply. Use a graph to
illustrate your answer.