In this video we will solve a Numerical of finding Consumers' surplus, Producers'Surplus, total surplus and DEADWEIGHT loss on account of imposition of price floor
The question is
Suppose the inverse market demand curve is
P =20020 and inverse market supply curve
is P= 50 +Q. Suppose government imposes price
First, solve for equilibrium price of 65 and quantity 50. Then, we Use these functions to draw the demand and supply curves
Insert the floor price of 120 into the demand function to find that only 40 would be demanded at that price.
We calculate Consumers'surplus, Producers'Surplus , total surplus
Insert 40 into the supply function to find the price of 90 that corresponds to a quantity of 40. Because the price floor would reduce quantity from its equilibrium value of 50 to the new value of 40 we calculate new Consumers'surplus, Producers'Surplus , total surplus , the deadweight
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