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1 March, 19:37

1. Suppose that the demand curve for plums is given by Z = 10-2p, where Z is the number of pounds demanded per year of plums and the price is p. a. Assume the price were $1. Find the total quantity demanded, the total amount spent, and calculate the consumer surplus. b. Now suppose that the government imposes a plum quota program (the PQP) so that plums now cost $2. Find the new quantity demanded, total amount spent, and total consumer surplus. What is the most consumers would be willing to sacrifice to get rid of the program (Hint: Think about the change in the consumer surplus and it means).

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  1. 1 March, 20:02
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    Explanation: The demand function is given as:

    Z = 10-2p.

    For A, we have:

    Price = $1.

    To find the total quantity demanded, we have:

    Z = 10-2 (1)

    Z = 10-2

    Z = 8 pounds

    To find the total amount spent, we have:

    Z = 10-2p

    Where:

    Z = 8.

    We have:

    8 = 10-2p

    2p = 10-8

    2p = 2

    p = $1

    To find the consumer surplus, we have:

    1/2 x Z x p

    = 1/2 x 8 x 1

    = 4.

    For B, the price is $2. To fine the new quantity demanded, we have:

    Z = 10-2 (2)

    Z = 10-4

    Z = 6.

    Total amount spent is $2.

    Consumer surplus is:

    1/2 x Z x p

    = 1/2 x 6 x 2

    = 6.

    To find the most consumers would be willing to sacrifice to get rid of the program, we calculate the change in consumer surplus, thus:

    ∆C. S = 6-4 = 2.
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