Final answer:
To solve for the equilibrium price and quantity, graph the supply function P=Qs and the demand function P=12-0.2Qd, finding where they intersect. At equilibrium, price is $10 and quantity is 10 units. A price ceiling would cause a shortage and reduce total surplus.
Step-by-step explanation:
To graph the given supply and demand functions, first rearrange both functions to solve for P. The supply function is Qs = P, so it remains P = Qs. The demand function given is Qd = 60 - 5P, which rearranges to P = 12 - 0.2Qd. Plotting these on a graph, the y-intercept of the demand curve is 12 (where Qd=0), and the slope is -0.2 (decreasing), while the supply curve has a y-intercept of 0 and a slope of 1 (since P=Qs is a straight line).
The equilibrium price and quantity occur where the quantity supplied equals the quantity demanded (Qs=Qd). Setting the demand equation equal to the supply equation gives 60 - 5P = P, which simplifies to P = 10. Therefore, at the equilibrium price of $10, the quantity is 60 - 5(10) = 10 units.
Consumer surplus is the area under the demand curve but above the price, forming a triangle. In contrast, producer surplus is the area above the supply curve but below the price, also forming a triangle. If a price ceiling of $10 is imposed and the equilibrium price is above $10, it leads to a shortage, as the quantity demanded at that price would be higher than the quantity supplied. This intervention reduces the total surplus because it distorts the market outcome and can lead to inefficiencies.