ECON100: Practise Set 4

Suppose the market for Cadbury Dairy Milk is given by the following equations.

Demand : P = 100 Qd
Supply : P = 10 + 2Qs
Use these equations to solve Questions 1-6
Question 1
(a) What is the market equilibrium?
(b) Calculate the Consumer, Producer and Total Surplus in the market.
Question 2
Suppose that the government introduces a per unit tax of 10 Rs.
(a) What is the new market equilibrium?
(b) Who bears the tax burden more?
(c) What is the new total surplus?
(d) Is there a Deadweight Loss?
Question 3
Suppose that the government introduces a per unit subsidy of 10 Rs.
(a) What is the new market equilibrium?
(b) Who benefits more from the subsidy?
(c) What is the new total surplus?
(d) Is there a Deadweight Loss?
Question 4
Suppose that the government imposes a price ceiling of Rs. 50.
(a) What are the new Price and quantity prevailing in the market?
(b) What is the new total surplus?
(c) Is there a Deadweight Loss?
Question 5
Suppose that the government imposes a price floor of Rs. 80.
(a) What are the new price and quantity prevailing in the market?
(b) What is the new total surplus?
(c) Is there a Deadweight Loss?
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Question 6
Suppose that the price of KitKat (a substitute) decreases. This will lead to
a change in one of the curves intercept by 10 units.
(a) What is the new market equilibrium?
(b) Calculate the new Consumer, Producer and Total Surplus in the market.
(c) Is there a Deadweight Loss? (Think Carefully.)
Note: Questions 2-6 are not linked to each other. All the changes introduced in each Question are with respect to the original market given at the
start and solved in Question 1.
Question 7
Suppose the market is given by the following equations.
Demand : P = 50 3Qd
Supply : P = 60 + 2Qs
(a)What is the market equilibrium?
(b) Calculate the Consumer, Producer and Total Surplus in the market.
Question 8
Suppose the market for iPhone is given by the following equations.
Demand : P = 1000 Qd
Supply : Qs = 250
(a) What is the elasticity of demand?
(b) What is the elasticity of supply?
(c) What is the market equilibrium?
(d) Calculate the Consumer, Producer and Total Surplus in the market.
(e) Suppose that the government introduces a per unit tax on of 50 dollars
(i)What is the new market equilibrium?
(ii)Who bears the tax burden more?
(iii) What is the new total surplus?
(iv) Is there a Deadweight Loss?

Suppose the market for Milo is given by the following equations.

Demand : P = 50 3Qd
Supply : P = 10 + Qs
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Use these equations to solve Questions 9-14

Question 9
(a) What is the market equilibrium?
(b) Calculate the Consumer, Producer and Total Surplus in the market.
Question 10
Suppose that the government introduces a per unit tax of 5 Rs.
(a) What is the new market equilibrium?
(b) Who bears the tax burden more?
(c) What is the new total surplus?
(d) Is there a Deadweight Loss?
Question 11
Suppose that the government introduces a per unit subsidy of 6 Rs.
(a) What is the new market equilibrium?
(b) Who benefits more from the subsidy?
(c) What is the new total surplus?
(d) Is there a Deadweight Loss?
Question 12
Suppose that the government imposes a price ceiling of Rs. 30.
(a) What are the new Price and quantity prevailing in the market?
(b) What is the new total surplus?
(c) Is there a Deadweight Loss?
Question 13
Suppose that the government imposes a price floor of Rs. 40.
(a) What are the new price and quantity prevailing in the market?
(b) What is the new total surplus?
(c) Is there a Deadweight Loss?

Question 14
Suppose that the cost of production decreases due to a decrease in price of
barley (its one of the inputs). This will lead to a change in one of the curves
intercept by x units.
(a) What is the new market equilibrium?
(b) Calculate the new Consumer, Producer and Total Surplus in the market.
(c) Is there a Deadweight Loss? (Think Carefully.)
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Note: Questions 10-14 are not linked to each other. All the changes introduced in each Question are with respect to the original market given at
the start and solved in Question 9.