The Ministry of Tourism in the Republic of Palau estimates that the demand for its scuba diving tours is given by QD = 6,000 – 20P, where Q is the number of divers served each month and P is the price of a two-tank dive. The supply of scuba diving tours is given by QS = 30P – 2,000.
a. Solve for the equilibrium price and quantity.
b. Find the value of the consumer surplus received by divers visiting Palau.
c. Find the value of producer surplus received by dive shops.
d. Suppose that the demand for scuba diving services increases, and that the new demand is given by QD = 7,000 – 20P. Calculate the impact of this change in demand on the values you calculated in parts (a) through (c).
e. Are consumers better off or worse off as a result of the demand increase?