please answer all the questions Question 1 Suppose that the

please answer all the questions

Question: 1 Suppose that the demand curve for plums is given by Q 10-2p, where Q is the number of pounds demanded per year and p is the price per pound. Suppose that the price is $1 per pound. Find the quantity demanded, total expenditure (price times quantity demanded) and consumer surplus. Now suppose that the government initiates a program to limit the supply of plums and, as a consequence, the price per pound goes up to $2. What is consumer surplus after the price increase? How much would consumers be willing to bribe legislators to repeal the supply limitation program? Question: 2

Solution

Answer

Quantity demanded Q= 10-2p

Then if price per pound is $1

Quantity demanded when price $1 / pound is Q= 10-2(1)=8

Total expenditure= Price × Quantity demanded= 1×8=$8

Consumer surplus is the area of triangle made up of the points on Price Quantity plane which are as below

Point 1= (0,5) this point is point on Price axis when no quantity is demanded Point 2=(8,1) the actual quantity demanded on Price level

Hence area of this triangle using above 3 points can be found as below

Consumer Surplus= 1/2×(height)×(base)

Height here is (5-1)=4 along price axis , base is (8-0)=8

CS1= 1/2×4×8=16

Now if price is increased to $2 then quantity demanded is

Q=10-2(2)=6

Equilibrium point now is (6,2)

CS can be calculated as mentioned above

CS2=1/2×(5-2)×(6-0)=1/2×3×6=9

Hence ,

Decrease in CS= CS1-CS2= 16-9=7

Due to the program expenditure is increase by $4 then willingness to pay should be $4