Problem 1: Quotas and Surpluoes [10 Points] Suppose we are thinking about the market for stereos in Toronto. We know a lot about the market
Problem 1: Quotas and Surpluoes [10 Points] Suppose we are thinking about the market for stereos in Toronto. We know a lot about the market and the rms in it, and know that stereo supply curve in Toronto is given by: Cl=l3-1D Where "05\" is the quantity supplied and "p" represents the price at which the quantity would be supplied. Similarly, we know a lot about people's tastes and how much they like stereos. The stereo demand curve is Toronto is given by: Cu: 2 10-3 4p Where "Up\" is the quantity demanded. 1. Solve for the market equilibrium price level {p*) and quantity sold ((1'). Show your work. [2 points] 2. Calculate the exact amount of {i} Consumer Surplus, [ii] Producer Surplus, and {iii} Deadweight Loss if any. Show your work. [3 points] Now suppose that the mayor of Toronto is very concerned about the level of noise pollution in the city, and targets specifically stereos. The city sets a quota at 10 stereos, banning the selling of any higher quantity than this. 3. Plot the Supply and Demand from part 2 above, but now with this quota in place. Again, include: [2 points] a. The new Quantity sold with the quota and the new price the quantity is sold at. b. The Area that makes up any Consumer Surplus {labelled CS]. c. The Area that makes up any Producer Surplus [labelled PS). d. The Area that makes up any Deadweight Loss [labelled DWL}. 4. Finally, calculate the new exact amount of {i} Consumer Surplus, [ii] Producer Surplus, and {iii} Deadweight Loss if any under this new quota scheme. Show your work. [3 points]
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