Problem

At the University of Ghana taxi rank, drivers ( suppliers) face a supply function of the form $p=q+90$. Students (consumers) who request for ride at the station have estimated the demand function $P=410-1.5 q$ where $p$ is the price per ride (in $\mathrm{GH}$ ) and $q$ is the number of rides. Find the consumers' surplus when market equilibrium is established.

Solution

Step 1 :Given the supply function \(p = q + 90\) and the demand function \(P = 410 - 1.5q\), where \(p\) is the price per ride and \(q\) is the number of rides.

Step 2 :The equilibrium is established when the quantity demanded equals the quantity supplied, i.e., when the demand function equals the supply function. So, we need to solve the equation \(q + 90 = 410 - 1.5q\) for \(q\) to find the equilibrium quantity.

Step 3 :The solution to the equation gives the equilibrium quantity as \(q = 128\).

Step 4 :Substitute this quantity into the demand function to find the equilibrium price. The equilibrium price \(p = 218\).

Step 5 :The consumer surplus is the area between the demand curve and the price level up to the quantity demanded at the market equilibrium. It is calculated as the integral of the demand function from 0 to the equilibrium quantity, minus the total amount of money consumers actually paid, which is the equilibrium price times the equilibrium quantity.

Step 6 :The consumer surplus is calculated as \(12288\).

Step 7 :Final Answer: The consumers' surplus when market equilibrium is established is \(\boxed{12288}\).

From Solvely APP
Source: https://solvelyapp.com/problems/36183/

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