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Inverse function of market demand for certain good is equal to $P=100-0.25Q$, inverse supply function is $P=20+0.55Q$. Calculate equilibrium price and quantity. Furthermore calculate consumer and producer surplus.

Equlibrium price and quantity i think i know how to calculate: $$20+0.55Q=100-0.25Q$$ and this will be the quantity whereas the price will be (substituting Q with value calculated above): 20+0.55Q=P am i correct with this? I am lost with consumer/producer surplus need more help. edit: I have and idea about consumer/producer surplus: consumer: $0.5 \times 100 \times 25=1250$ and producer $100 \times 55 \times 0.5=2750$ is this correct?

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    $\begingroup$ When you are lucky enough to deal with affine/linear functions, it is a pity not to draw diagrams, to see for your eyes consumer and producer surplus, before calculating numerical values. $\endgroup$
    – Alecos Papadopoulos
    Apr 8, 2015 at 19:56
  • $\begingroup$ but am i right or wrong with my solutions? $\endgroup$
    – Krowskir
    Apr 9, 2015 at 11:30
  • $\begingroup$ The price and quantity are obviously correct. For the surpluses I don't know -draw the diagrams and you will figure it out. $\endgroup$
    – Alecos Papadopoulos
    Apr 9, 2015 at 12:37
  • $\begingroup$ I have the diagram and what i have calculated is the area of those two triangles that on the graph should represent consumer and producer surplus. Nevertheless thank you for your answer. $\endgroup$
    – Krowskir
    Apr 9, 2015 at 13:09

1 Answer 1

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Equating supply and demand we obtain the equilibrium

$$P^* = 75, Q^*=100$$

The corresponding diagram is enter image description here

Consumer Surplus is the area of triangle $B-E-C$ so

$$CS = \frac 12 \cdot (100-75)\cdot 100 = 1250$$

Producer Surplus is the area of the triangle $B-E-A$ so

$$PS = \frac 12 \cdot (75-20)\cdot 100 = 2750$$

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