QUANTITATIVE METHODS

ALGEBRAIC EXPRESSIONS
&
LINEAR FUNCTIONS

By
Christian Akrong Hesse (PhD)
C. A. HESSE
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 OUTLINE OF PRESENTATION
• SLOPE OF A STRAIGHT LINE
• BUDGET LINES
• ALGEBRAIC SOLUTION OF SIMULTANEOUS LINEAR
EQUATIONS
• SUPPLY AND DEMAND ANALYSIS
• CONSUMER SURPLUS (CS)
• PRODUCER SURPLUS (PS)

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 LINEAR FUNCTIONS
What is a Linear Function?
• A linear function is an algebraic equation in which each term is either
a constant or the product of a constant and (the first power of) a single
variable.
• For example, a common equation, y = mx + c , (the slope-intercept
form) is a linear function because it meets both criteria with x and y as
variables and m and c as constants.
• The origin of the name “linear” comes from the fact that the set of
solutions of such an equation forms a straight line in the plane.
• In the linear function graphs, the constant, m, determines the slope or
gradient of that line
• The constant term, c, determines the point at which the line crosses the
y-axis, otherwise known as the y-intercept.
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• Fig. 1.1 shows the graphs of the linear functions
y

y = 2 x + 1 and y = 7 − 2 x. y = 2x + 1

• The blue line, y = 2 x + 1, has a positive slope of 2 y = 7 − 2x

and a y-intercept of 1; the red line has a negative

slope of −2 and a y-intercept of 7. (2, 3)

• Vertical lines have an undefined slope, and cannot

be represented in the form y = mx + c, but instead
as an equation of the form x = b for a constant b, x
because the vertical line intersects a value on the
x-axis, b. Fig. 1.1

• Horizontal lines have a slope of zero and is represented by the form, y = c,

where c is the y-intercept.
• Slope (or gradient) describes the direction and steepness of a line and can
be calculated given two points on the line.
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SLOPE OF A STRAIGHT LINE
• The slope (gradient) of the line joining A(x1, y1) and B(x2, y2) is
defined as
Difference in y -values y2 − y1 y1 − y2
m= = or .
Difference in x-values x2 − x1 x1 − x2
✓ Positive values of a gradient correspond to straight lines where y
increases as x increases.
✓ Negative values of a gradient correspond to straight lines where y
decreases as x increases.
✓ Larger values of a gradient correspond to straight lines with steeper
slopes.

Example 1.1
Determine the slope and intercept of the straight line 9x + 3y = 4.
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SLOPE OF A STRAIGHT LINE
Solution
We need to write this equation in the form y = mx + c.
9x + 3y = 4
3y = –9x + 4
y = −3x + 43
One can say immediately that the slope of this straight line is −3 and the
intercept is 43 .

Example 1.2
Find the slope of the straight line that passes through the points (2, −1)
and (−2, −11)

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SLOPE OF A STRAIGHT LINE
Solution
The slope of a straight line passing through the points (x1, y1), (x2, y2) is
y2 − y1
m= x2 − x1
.
Therefore, the required slope is
−11 − ( −1)
m= −2 − 2
= −−10
4
= 5.
2

Exercise 1.1
1. State the slopes and y-intercepts of the following lines:
(a) 2y + 3x – 5 = 0 (b) 5y – 3x + 2 = 0 (c) 3y – 6x = 9.
2. Find the gradients of the lines that pass through the following pairs
of points:
(a) (1, 2) , (3, 6), (b) (–1, 3) , (2, 4), (c) (9, –2) , (5, –4).
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BUDGET LINES
• Suppose that a company or an individual has a given budget, B, that
can be used to purchase two goods.
• If the cost or price of each of these goods is known, then it is possible
to determine the different combinations of the two goods that can be
bought with the given budget.
• Suppose that the two goods are denoted by X and Y, and their
respective prices are PX and PY .
• The quantities purchased of these goods is also denoted by X and Y.
Then the equation of the budget line is
PX X + PY Y = B.

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BUDGET LINES
Example 1.3
An electrical company has a budget of GH¢ 6000 a week to spend on the
manufacture of toasters and kettles. It costs GH¢ 5 to manufacture a toaster
and GH¢ 12 to manufacture a kettle. Write down the equation of the budget
line and sketch its graph.
T

Solution
Let T and K denote the number of toasters and 5T + 12K = 6,000.
kettles that are manufactured each week. Then the
cost of manufacture and the available budget
means that the budget line has the equation
5T + 12 K = 6,000.
Fig 1.2 shows the graph of the budget line. K
Fig. 1.2

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BUDGET LINES
Example 1.4
A person has GH¢ 120 to spend on two goods (X, Y) whose respective prices
are GH¢ 3 and GH¢ 5.
(a) Draw a budget line showing all the different combinations of the two
goods that can be bought with the given budget (B).
(b) What happens to the original budget line if the budget falls by 25%?
(c) What happens to the original budget line if the price of X doubles?
(d) What happens to the original budget line if the price of Y falls to GH¢ 4?
Draw the new budget lines in each case.

Solution
(a) The equation of the budget line is
3 X + 5Y = 120 or Y = − 53 X + 24.
The graph of this budget line is represented by the black line in Fig. 1.3.
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BUDGET LINES
(b) If the budget falls by 25% it is reduced by 25% of GH¢120, i.e., GH¢30.
The new budget B = GH¢120 – GH¢30 = GH¢90. The equation for the
new budget line is Y
3 X + 5Y = 90 or Y = − 53 X + 18.
This line has the same slope as the original
budget line but lies to the left of it. This is the
red line in Fig. 1.3.
(c) If the price of X doubles, i.e. from GH¢3 to
GH¢6, then the budget equation become X
6 X + 5Y = 120 or Y = − 5 X + 24.
6
Fig. 1.3

This time the intercept remains the same as the original budget line but the
slope is steeper (the slope is −6/5 compared with the slope of −3/5 of the
original budget line). The graph of this budget line is represented by the
yellow line in Fig. 1.3.
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BUDGET LINES
(d) If the price of Y falls to GH¢ 4,
3 X + 4Y = 120 or Y = − 34 X + 30.
This time both the slope and the intercept change. See the orange line in
Fig. 1.3.

Exercise 1.2
A person has G¢60 to spend on two goods, X and Y ,
whose respective prices are GH¢6 and GH¢4.
(a) Draw a budget line showing all the different combinations of the
two goods that can be bought within the given budget.
(b) What happens to the original budget line if the budget is increased by
20%?
(c) What happens to the original budget line if the price of X is halved?

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ALGEBRAIC SOLUTION OF SIMULTANEOUS LINEAR EQUATIONS

In this section we consider a method of solution of simultaneous equations

which relies on algebra. It is called the elimination method since each stage of
the process eliminates one (or more) of the unknowns. To illustrate the method,
consider the following example.

Example 1.12
In this method, one of the variables is eliminated so that the pair of equation
is reduced to a linear equation in one variable. Suppose we want to solve the
simultaneous equations
2x + 3y = 8 ………………..…………………………..……………..(1)
5x – y = 3 ……………………………………………………………(2)
(1) Make sure the variable you want to eliminate has the same coefficient in
both equations. We multiply equation (2) by 3 to make the coefficients of
y in both equations equal.
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15x – 3y = 9 ……………………………………………...……….(3)
(2) Add or subtract the two equations if the signs of the variable you
want to eliminate in the two equations are different or the same
respectively.
2 x + 3 y = 8 …………………………………………………(1)
15 x – 3 y = 9 ………………………………………………....(3)
(1) + (3)  17x = 17
 x = 1.
(3) Find the other unknown variable by substituting your solution into any of
the original equations. Put x = 1 into (1), that is
2x + 3y = 8 ……………………………………………………….....(1)
2(1) + 3y = 8  3y = 8 – 2  3y = 6  y = 2.

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ALGEBRAIC SOLUTION OF SIMULTANEOUS LINEAR EQUATIONS

Example 1.5
Tickets for a film show were sold at GH¢ 40.00 per adult and GH¢ 20.00 per
child. The total amount raised from the 500 tickets sold was GH¢ 16,000.00.
(a) Find the number of (i) adult who bought tickets for the show,
(ii) children who bought tickets for the show.
(b) 12% of the amount realized was paid as tax and 2% of the amount realized
was paid to the ticket sellers. Find the amount paid:
(i) as tax; (ii) to the ticket sellers.

Solution
(a) Let a = number of adults and c = number of children.
If the total number of ticket sold was 500, then
a + c = 500 ……………………………………………................(1)
If the total amount raised was GH¢ 16,000.00, then
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ALGEBRAIC SOLUTION OF SIMULTANEOUS LINEAR EQUATIONS

40a + 20c = 16,000 (divide through by 20)

2a + c = 800 ……………………………………………………..(2)
(2) – (1) gives a = 300.
Substituting a = 300 into (1), we have
300 + c = 500  c = 500 − 300 = 200.
(i) Number of adults who bought the tickets is 300.
(ii) Number children who bought tickets for the show is 200.
(b) (i) Amount paid for tax = 100 12  GH¢ 16,000 = GH¢ 1,920
2  GH¢ 16,000 = GH¢ 320.
(ii) Amount paid to the ticket sellers = 100

Example 1.6
Kofi bought six books and ten pencils from a store. Ama bought three books
and twenty-two pencils of the same kind from that store. If each of them paid
GH¢ 17.00 for the items, find the cost of
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ALGEBRAIC SOLUTION OF SIMULTANEOUS LINEAR EQUATIONS

(a) each pencil, (b) each book, (c) two books and four pencils.

Solution
Let x and y denote the cost of each book and each pencil respectively.
If Kofi bought 6 books and 10 pencils and paid GH¢ 17, then
6 x + 10 y = 17 …………………………………………………….…..(1)
If Ama bought 3 books and 22 pencils and paid GH¢ 17, then
3x + 22 y = 17 ……………………………………………………..…...(2)
(2)  2 gives
6 x + 44 y = 34 ……………………………………………...………...(3)
(3) – (1) gives 34 y = 17  y = 17 34
= 0.5
Substituting y = 0.5 into (1), we have
6 x + 10(0.5) = 17  6 x = 17 − 5  6 x = 12  x = 12 6
= 2.
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ALGEBRAIC SOLUTION OF SIMULTANEOUS LINEAR EQUATIONS

(a) Each pencil costs GH¢ 0.50 or 50 pesewas.

(b) Each book costs GH¢ 2.00
(c) Two books and four pencils cost: 2 x + 4 y = 2(2) + 4(0.5) = GH¢ 6.00.

Exercise 1.3
1. Solve the following simultaneous equations:
6 x + 2 y = 10 7x − 3y = 2 8x − 3 y = 2
(a) 4 x + 8 y = −20 (b) 4 x − 5 y = −12 (c) 2 x + y = 4
2. The total annual sales of a book in either paper or electronic form are 3500.
Each paper copy of the book costs GH¢30 and each e-book costs GH¢25.
The total cost is GH¢97,500.
(a) If x and y denote the number of copies in paper and electronic form,
write down a pair of simultaneous equations.
(b) Solve the equations to find the number of e-books sold.
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3. Alex went to his school bookshop and bought 8 notebooks and 3 ball point
pens. This cost him GH¢ 13.50. His sister bought 7 notebooks and 2 ball
point pens; she paid GH¢ 11.50. What was the cost of a notebook and the
cost of a ball point pen?
4. Mr. Akrong gave his two children Nii and Naa a total of GH¢ 900.00 as a
present. Nii immediately paid Naa GH¢ 75.00 to repay a loan. They then
found that Naa had twice as much as Nii. How much did each of them
receive from their father?

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SUPPLY AND DEMAND ANALYSIS
• The quantity demanded, Q, of a particular good depends on the market
price, P. We assume that this relationship is linear, i.e.
P = aQ + b,
for some appropriate constants (parameters) a and b.
• Similarly, the supply equation or supply function is the relation
between the quantity, Q, of a good that producers plan to bring to the
market and he price, P, of the good.
• The market is said to be in equilibrium when the quantity demanded
is equal to the quantity supplied.
• The corresponding price, P0, and quantity, Q0, are called the
equilibrium price and quantity.
• It is also of interest to observe the effect of a shift of the market price
away from its equilibrium price.
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SUPPLY AND DEMAND ANALYSIS
Example 1.7
The demand and supply equations of a good are given by
4 P = −Qd + 240
5 P = Qs + 30
Determine the equilibrium price and quantity.

Solution
At market equilibrium, we have
Qd = Qs = Q,
where Q is the equilibrium quantity. In this case, the demand and supply
equations become
4P = −Q + 240 …………………………………………………(1)
5P = Q + 30. …………………………………………………...(2)
Thus, (1) + (2) gives
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SUPPLY AND DEMAND ANALYSIS
9 P = 270  P = 270 9
= 30
Substituting P = 30 into (2), we have
5 × 30 = Q + 30  Q = 150 – 30 = 120.
Thus, equilibrium price and quantity are P = 30 and Q = 120.
Example 1.8
The demand and supply functions of a good are given by
P = −Qd + 125,
2P = 3Qs + 30.
(a) Determine the equilibrium price and quantity.
(b) Determine the effect on the market equilibrium if the government decides
to impose a fixed tax of GH¢5 on each good. Who pays the tax?
(c) Determine the amount of the government tax that is passed on to the
consumer, and hence the part of the tax that is borne by the supplier.
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SUPPLY AND DEMAND ANALYSIS
(a) At market equilibrium, we have
Qd = Qs = Q,
where Q is the equilibrium quantity. In this case, the demand and supply
equations become
P = −Q + 125 …………………………………………………….(1)
2P = 3Q + 30 …………………………………………………….(2)
We can eliminate Q from the system by multiplying the demand equation
(1) by 3:
3P = −3Q + 375 …………………………………………………..(3)
Adding the resulting equation (2) to the supply equation (3) gives
5P = 405  P = 405 5
= 81.
Substituting P = 81 into equation (1), we have
81 = −Q + 125  Q = 125 − 81 = 44.
Thus, equilibrium price and quantity are P = 81 and Q = 44.
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SUPPLY AND DEMAND ANALYSIS
(b) If the government imposes a fixed tax of GH¢5 on each good, then the
original supply equation needs to be modified. This is because the amount
the supplier receives, as a result of each sale, is the amount that the
consumer pays (P) less the tax (GH¢5), i.e., P −5. Thus, the new supply
equation is obtained by replacing P by P − 5 in the original supply
equation:
2(P − 5) = 3Qs + 30.
 2P − 10 = 3Qs + 30,
or 2P = 3Qs + 40.
At market equilibrium, we have
Qd = Qs = Q,
In this case, the demand and supply equations become
P = −Q + 125 ..………………………………………………….(4)
2P = 3Q + 40 …………………………………………………...(5)
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SUPPLY AND DEMAND ANALYSIS
We can eliminate Q from the system by multiplying the demand equation
(4) by 3:
3P = −3Q + 375 ………………………………………………(6)
and adding the resulting equation (6) to the supply equation (5). This
gives
5P = 415  P = 83.
Substituting P = 83 into (4) gives
83 = −Q + 125  Q = 125 − 83 = 42.
The new equilibrium price and quantity are P = 83 and Q = 42.
(c) The influence of government taxation on the equilibrium price is to
increase it from GH¢81 to GH¢83. Therefore, not of all the tax is passed
on to the consumer. The consumer pays an extra GH¢2 per good after tax
has been imposed. The remaining, GH¢3, part of the tax is borne by the
supplier.
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CONSUMER SURPLUS (CS)
• This is the difference between the expenditure a consumer is willing to make on successive units of
a good from Q = 0 to Q = Q0 and the actual amount spent on Q0 units of the good at the market
price of P0 per unit.
• To explain how consumer surplus is calculated geometrically consider the demand function,
P = 100 – 0.5Q which is graphed in Fig. 4.1.
P
• To calculate consumer surplus when the market price is 55, proceed as 100
follows.
P = 100 − 0.5Q
• When the market price per unit is 55 the consumer will purchase 90 units, CS
P0 = 55 E0
since, according to the demand function,
55= 100 – 0.5Q  0.5Q = 100 – 55= 45  Q = 90.
• The consumer, therefore, spends a total of 0 Q0 = 90
Q

P  Q = 55  90 = 4,950. Fig. 1.4

• This is equivalent to the area of the rectangle 0P0 E0Q0
• The consumer pays the same price, 55, for each of the 90 units purchased;
• However, he or she is willing to pay more than 55 for each of the units preceding the 90th when the
good was scarcer, Q < 90.
• The total amount which the consumer is willing to pay for the first 90 units is given by the area
under the demand function between Q = 0 and Q = 90, that is, area 0AE0Q0.
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CONSUMER SURPLUS (CS)
• Since consumer surplus is the difference between the amount that the consumer is willing to pay
and the amount that the consumer actually pays, then
CS = 0AE0Q0 – 0P0E0Q0 = AP0E0
= 0.5  90  (100 – 55) = 2,025.
• Area AP0E0 is a benefit to the consumer as the amount which the consumer is willing to pay
exceeds the amount which is actually paid.
P
Example 1.9 125 A
Calculate the consumer surplus for the demand function
P = −5Q + 125, when the market price is P0 = 60. P = −5Q + 125
CS
Solution P0 = 60 E
Q intercept: when P = 0, we have
0 = −5Q + 125  5Q = 125  Q = 25
P intercept: when Q = 0, we have
P = −5(0) + 125  P = 125 0 Q0 = 13 25 Q
The consumer surplus is given by = area of AP0E Fig . 1.5
= 2  (base)  (height)
1

= 0.5  13  (125 – 60) = 0.5  13  65 = 422.5.

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PRODUCER SURPLUS (PS)
• This is the difference between the revenue the producer receives for Q0 units of a good when the market price
is P0 per unit and the revenue that the producer was willing to accept for successive units of the good from
Q = 0 to Q = Q0.
• To explain how producer surplus is calculated geometrically consider the supply function, P = 10 + 0.5Q
which is graphed in Fig. 4.3. P P = 10 + 0.5Q
• To calculate producer surplus when the market price is 55 per unit,
proceed as follows.
• When the market price per unit is 55 the producer will supply 90 P0 = 55 E0
units since PS
P = 10 + 0.5Q  55 = 10 + 0.5Q  45 = 0.5Q  Q = 90
• So, the producer receives 55 for each of the 90 units, giving a total 10
B
revenue of P  Q = 55  90 = 4,950. This is equivalent to the area 0
of rectangle 0P0E0Q0. 0 Fig. 1.6 Q0 = 90 Q

• The producer, however, is willing to supply each unit, up to the 90th unit, at prices less than 55.
• The revenue the producer is willing to accept for units below the ninetieth unit is given by the area
under the supply function between 0 = 0 and 0 = 90, that is, area 0BE0Q0.
• Since producer surplus is the difference between the revenue the producer receives at Q = 90 and the revenue
that the producer was willing to accept for units supplied up to the ninetieth, then
PS = 0P0E0Q0 – 0BE0Q0 = BP0E0 = 0.5  90  45 = 2,025.
• Therefore, area BP0E0 is a benefit to the producer.
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PRODUCER SURPLUS (PS)
Example 1.10
The supply functions for a good is P = 10 + 6Q. Calculate the producer surplus when the market price
is P0 = 34.
P
Solution P = 10 + 6Q

Q intercept: when P = 0, we have P0 = 34

−
0 = 10 + 6Q  6Q = −10  Q = 6 = −1.67.
10 E
PS
P intercept: when Q = 0, we have
P = 10 + 6(0)  P = 10
The producer surplus is given by = area of BP0E = 12  (base)  (height)
10 B
0 Q0 = 4 Q
= 0.5  4  (34 – 10)
= 0.5  4  24 = 48.

Example 1.11
AFB Company Ltd is a company that was set up in June 2020 that produces a fertilizer
known BedRock Fertilizer. Among the competitors of your product are Asaase Wura
fertilizer from YARA Ghana Ltd. As an expert in the marketing of fertilizers, you have been
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PRODUCER SURPLUS (PS)
poached from YARA Ghana Ltd to oversee the marketing of this new product. For you to
make informed decision and advise the board appropriately, you engaged an economist who
estimated the demand equation for your firm’s product. The economist used data from 549
cocoa farmers around the country for the month of January 2021 to estimate a demand curve
for your product as:
Qd + 0.25P − 12 = 0.
In addition, the economist also estimated the supply function for your product as:
4Qs − 2 P = −6.
(a) Determine the equilibrium level of prices and quantity demand.
(b) Represent your answer graphically,
(c) Determine the welfare of economic agents.
(d) Suppose the government imposes a tax of ¢6 on every bag sold, determine the new
equilibrium price and quantity.
(e) Show how the economic agents share the tax.
(f) What is the amount of government tax revenue?

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PRODUCER SURPLUS (PS)
Solution
(a) At market equilibrium, we have
Qd = Qs = Q,
where Q is the equilibrium quantity. The demand and supply equations become
Q + 0.25P = 12 ……………………………………………………..……….….(1)
4Q − 2 P = −6 …………………………………………………………..……….(2)
We can eliminate Q from the system by multiplying the demand equation (1) by 4:
4Q + P = 48……………………………………………………………………..(3)
Equation (3) – Equation (2), gives
3P = 54  P = 54 3
= 18.
Substituting P = 18 into equation (1), we have
Q + 0.25(18) = 12  Q + 4.5 = 12  Q = 12 − 4.5 = 7.5.
The equilibrium level of prices and quantity demand P = 18 and Q = 7.5

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PRODUCER SURPLUS (PS)
(b) Sketching DD curve
Qd + 0.25P = 12 P
Q intercept: when P = 0, we have
Qd + 0.25(0) = 12  Qd = 12 48 A

P intercept: when Qd = 0, we have

0 + 0.25 P = 12  P = 0.25
12 = 48.

Sketching SS curve E
4Qs − 2 P = −6 P0 = 18
Q intercept: when P = 0, we have
4Qs − 2(0) = −6  Qs = −46 = −1.5 3B
P intercept: when Qs = 0, we have −1.5 Q0 = 7.5 12 Q
4(0) − 2 P = −6  P = −−62 = 3.
(c) Finding welfare of economic agents
Consumer surplus = area of AP0E = 12  (base)  (height)
= 0.5  7.5  (48 – 18)
= 0.5  7.5  30 = 112.5.
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PRODUCER SURPLUS (PS)
Producer surplus = area of BP0E = 12  (base)  (height)
= 0.5  7.5  (18 – 3)
= 0.5  7.5  15 = 56.25.
(d) Find the new supply curve
Old supply: 4Qs − 2 P = −6.
Suppose the government impose a lump sum tax of GH¢6, it will affect the supply curve. Thus,
the new supply equation is obtained by replacing P by P − 6 in the original supply equation.
4Qs − 2( P − 6) = −6.
4Qs − 2 P + 12 = −6
4Qs − 2 P = −18
At market equilibrium, we have Qd = Qs = Q. In this case, the demand and supply equations
become
Q + 0.25P = 12 ..…………………………………………………..……………………..(4)
4Q − 2 P = −18 …………………………………………………………………….….....(5)
Equation (4)  4 gives
4Q + P = 48 ……………………………………………………….............…………….(6)
Equation (6) – Equation (5) gives
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PRODUCER SURPLUS (PS)
3P = 66  P = 66
3
= 22.
Substituting P = 22 into Equation (4), we have
Q + 0.25(22) = 12  Q = 12 − 5.5 = 6.6.
The new equilibrium price and quantity are 22 and 6.6, respectively.
(e) Consumers’ share of unit tax = New Equilibrium Price – Old Equilibrium Price
= 22 – 18
= 4.
Producers’ share of unit tax = Tax per unit – Consumer’s share
= 6–4
= 2.
(f) 𝐺𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡 𝑡𝑎𝑥 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑇𝑎𝑥 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡  𝑁𝑒𝑤 𝑒𝑞𝑢𝑖𝑙𝑖𝑏𝑟𝑖𝑢𝑚 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
= 6  6.5
= 39

C. A. HESSE
Service Excellence 34
 LINEAR FUNCTIONS
PRODUCER SURPLUS (PS)
Exercise 1.4
1. The demand and supply functions of a good are given by
P + 2Qd = 144
4P − 3Qs = 136
where P, Qd, and Qs, denote the price, quantity demanded, and quantity supplied,
respectively.
(a) Determine the equilibrium price and quantity.
(b) Determine the effect on the market equilibrium if the government decides to
impose a fixed tax of GH¢11 on each good. Who pays the tax?

2. The demand and supply functions of a good are given by

4P = −Qd + 102
5P = Qs + 6
where P, Qd, and Qs denote the price, quantity demanded, and quantity supplied,
respectively.
(a) Determine the equilibrium price and quantity.
C. A. HESSE
Service Excellence 35
 LINEAR FUNCTIONS
PRODUCER SURPLUS (PS)
(b) Determine the effect on the market equilibrium if the government decides to
impose a fixed tax of GH¢9 on each good. Who pays the tax?

3. The demand and supply functions for a good are P = 50 – 2Q and P = 14 + 4Q,
respectively.
(a) Calculate the equilibrium price and quantity; confirm your answer
graphically.
(b) Calculate the consumer surplus (CS) and the producer surplus (PS) at
equilibrium, correct to two decimal places.

4. The demand and supply functions for a good are P = 100 – 0.5Q and
P = 10 + 0.5Q, respectively.
(a) Calculate the equilibrium price and quantity; confirm your answer
graphically.
(b) Calculate consumer and producer surplus at equilibrium.

C. A. HESSE
Service Excellence 36