1. Question 1 The demand and supply curves for hats at KCL are as follows: P = 90 - 6*Qd and P = 3*Qs, where price is £ (British Pounds) per hat and quantity is measured in hats. (a) What is the equilibrium price and quantity in this market? Illustrate the equilibrium graphically. [Note: make sure to label your graph ade- quately.] (b) Suppose the student government at KCL introduces a price ceiling for hats at £21 per hat. How many hats are exchanged at that price? How does the introduction of the price ceiling affect producer surplus? Illustrate the change in producer surplus graphically and calculate its monetary value. (c) Suppose the government commits to providing any excess demand in this market at £21 per hat once the price ceiling is implemented by paying sup- pliers for any losses. What is excess demand and what price would suppliers need to receive from the government? What will be the cost to the student government of providing this excess?

1. Question 1 The demand and supply curves for hats at KCL are as follows: P = 90 - 6Qd and P = 3Qs, where price is £ (British Pounds) per hat and quantity is measured in hats. (a) What is the equilibrium price and quantity in this market? Illustrate the equilibrium graphically. [Note: make sure to label your graph ade- quately.] (b) Suppose the student government at KCL introduces a price ceiling for hats at £21 per hat. How many hats are exchanged at that price? How does the introduction of the price ceiling affect producer surplus? Illustrate the change in producer surplus graphically and calculate its monetary value. (c) Suppose the government commits to providing any excess demand in this market at £21 per hat once the price ceiling is implemented by paying sup- pliers for any losses. What is excess demand and what price would suppliers need to receive from the government? What will be the cost to the student government of providing this excess?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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