A Question per day - Day 1

1. Consider the market for acne fighting products (e.g. Clearasil) and assume this market to be competitive - so that we can describe things in terms of demand and supply curves. The market demand and supply curves are described as:

(Demand) P = 5 - Qd
(Supply) P = 1 + Qs

where P = price, Qd = quantity demanded, and Qs = quantity supplied.

a. What is the equilibrium price and quantity in this market?
b. How much consumer and producer surplus exists in this market?
c. How does an increase in productivity affect the equilibrium from part a and surplus from part b?