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Suppose a technological advance reduces the cost of making computers.

Use a supply-and-demand diagram to show what happens to price, quantity, consumer surplus, and producer surplus in the market for computers.

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Related questions

Consider a market characterized by the following inverse demand and supply functions:

Px = 40 - 4Qd/x and Px = 10 + 2Qs/x

Determine the following:

Equilibrium price

Equilibrium quantity

Consumer expenditures

Consumer surplus

Producer surplus

The market demand function for corn is Qd = 20 - 2P

The market supply function is Qs = 5P - 1

both measured in billions of bushels per year. The initial equilibrium price is $3.00, and the initial equilibrium quantity is 14 billion bushels. Consumer surplus is $49.00, producer surplus is $19.60, and aggregate surplus is $68.60. Suppose the government wants to raise the price of corn to $3.50. What are the welfare effects of a price floor, price support, production quota, and voluntary production reduction program?

Instructions: Round quantities to 1 decimal place and prices to 2 decimal places. State the cost to government in absolute value. Fill in the blank for each of the Program below.

Program 1: A price floor

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion


Program 2: A price support

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion


Program 3: A production quota

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion


Program 4: A voluntary production reduction program

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion

The market demand function for corn is Qd = 20 - 2P

The market supply function is Qs = 5P - 1

both measured in billions of bushels per year. The initial equilibrium price is $3.00, and the initial equilibrium quantity is 14 billion bushels. Consumer surplus is $49.00, producer surplus is $19.60, and aggregate surplus is $68.60. Suppose the government wants to raise the price of corn to $3.50. What are the welfare effects of a price floor, price support, production quota, and voluntary production reduction program?

Instructions: Round quantities to 1 decimal place and prices to 2 decimal places. State the cost to government in absolute value. Fill in the blank for each of the Program below.

Program 1: A price floor

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion


Program 2: A price support

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion


Program 3: A production quota

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion


Program 4: A voluntary production reduction program

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion

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