Question

Microeconomic Theory

The demand for rubber erasers consists of two components. The first component is the demand for rubber erasers by art students. This demand is given by QA = 19,500 - 300P. The second component is the demand for rubber erasers by all others. This demand is given by QO = 30,000 - 2,500P.
(a) What is the total quantity demanded of rubber erasers if the price of an eraser is:
(i) $2
(ii) $5
(iii) $20
(iv) $40
(v) $70
(b) Assume that the supply of rubber erasers is given by QS = 39,900 + 2,000P.
(i) Find the equilibrium price and the equilibrium quantity.
(ii) Calculate the total consumer surplus. [Hint: It may be easier if you calculate the consumer surplus for art students and the consumer surplus for all others separately, and then add them up.]
(c) Assume that the supply of rubber erasers is given by QS = 11,800 + 100P. Find the equilibrium price and the equilibrium quantity.

Answer 1

The total quantity demanded of rubber erasers is found by summing the demands of two groups at given prices, the equilibrium price and quantity are determined by equating supply and demand, and consumer surplus is calculated from the demand curve.

Step-by-step explanation:

In microeconomic theory, to find the total quantity demanded of rubber erasers at different prices, you must sum the quantities demanded by art students and all others. For instance, at $2, the total quantity demanded would be the sum of QA and QO, calculated as (19,500 - 300*2) + (30,000 - 2,500*2). To find the equilibrium price and quantity, set the quantity supplied (QS) equal to the total quantity demanded (QD), and solve for the price (P) that balances the two. Once you have the equilibrium, the consumer surplus can be found by calculating the area between the demand curve and the equilibrium price for each group of consumers and then adding those values together.

To apply the given information to a new scenario, if the supply equation is QS = 11,800 + 100P, you would repeat the process of setting it equal to the total demand and solving for the new equilibrium price and quantity. The consumer surplus is not calculated for the new supply curve in this example.