Q3) A) The demand and supply functions of a product is given as P=200 – 0.5Q and P = 100+0.5Q, respectively. Solve for the equilibrium price and quantity in the product market. If the product has an external benefit of $20, analyse the market and determine the social optimal quantity. Compute the deadweight loss if the market operates at its equilibrium level. Support your answers with a suitable market diagram. What can the government do to restore efficiency in the product market? B) Consider two consumers of a product, A and B, with an individual demand function Qa = 400 – 5P, and Qb = 300 – 2.5Pb, respectively, where P is the price in dollars and Q is the quantity demanded.

Q3) A) The demand and supply functions of a product is given as P=200 – 0.5Q and P = 100+0.5Q, respectively. Solve for the equilibrium price and quantity in the product market. If the product has an external benefit of $20, analyse the market and determine the social optimal quantity. Compute the deadweight loss if the market operates at its equilibrium level. Support your answers with a suitable market diagram. What can the government do to restore efficiency in the product market? B) Consider two consumers of a product, A and B, with an individual demand function Qa = 400 – 5P, and Qb = 300 – 2.5Pb, respectively, where P is the price in dollars and Q is the quantity demanded.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: Public Goods And Common Resources

Section: Chapter Questions

Problem 2PA

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