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Suppose that the Demand Function for a certain product is given by Qd = 180 –4P and Supply Function is given by Qs = -10 + P.

a. Compare the Consumer  Surplus, Producer Surplus, Deadweight Loss, and Government Revenue, before and after, imposing a per unit tax of Rs. 3 on Seller.

b. What would happen to Consumer Surplus, Producer Surplus, Deadweight Loss,  and Government Revenue if due to rise in Income New Demand Function takes a form of Qdn = 190 – 3P?

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Related questions

QD 950 - P and QS = 2P - 160

Welfare Effects of a Tariff:
Given the demand and supply equations above, suppose the free trade (world) price is $200.

a. Solve for the amount imported, consumer surplus, and producer surplus.

b. Suppose a per unit tariff of $30 is imposed by the government. Solve for the consumer surplus, producer surplus, government revenue and total surplus with the tariff.

c. Solve for the change in consumer surplus, the change in producer surplus, the change in government revenue and change in total surplus (i.e. the deadweight loss) from the free trade case (without the tariff). [To do this, make the calculations using your answers in 3a, and calculate total surplus under free trade].

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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