A market has a demand function given by the equation Qd = 180 – 2P, and a supply function given by the equation Qs = -15 + P. The market is government-regulated with a price support per unit and production quotas. (NOTE: A production quota is a restriction on the quantity of the good that can be produced. Firms are not allowed to produce more than the quota). Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190 – 2P. The government is trying to decide between two options: • Maintain the number of quotas and let the market adjust, or • Maintain the price support and increase the number of quota
A market has a demand function given by the equation Qd = 180 – 2P, and a supply function given by the equation Qs = -15 + P. The market is government-regulated with a price support per unit and production quotas. (NOTE: A production quota is a restriction on the quantity of the good that can be produced. Firms are not allowed to produce more than the quota). Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190 – 2P. The government is trying to decide between two options: • Maintain the number of quotas and let the market adjust, or • Maintain the price support and increase the number of quota
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A market has a
Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190 – 2P. The government is trying to decide between two options: • Maintain the number of quotas and let the market adjust, or • Maintain the price support and increase the number of quotas
Transcribed Image Text:Suppose now that the government decides to increase the number of quotas available to 72
units, but it keeps the price support at the current level of $72.
d) Calculate
(i) the consumer surplus,
Answer:
(ii) the producer surplus,
Answer:
(iii) deadweight loss,
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