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. (a) If the price is set at $72 per unit, what production quota is needed to make sure there are no shortages or surpluses? (b) Calculate the deadweight loss 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. Suppose that the government decides to maintain the number of quotas and let the market adjust. (c) Calculate the (i) price observed in the market, (ii)the consumer and producer surplus (iii)deadweight loss
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.
(a) If the price is set at $72 per unit, what production quota is needed to make sure there are no shortages or surpluses?
(b) Calculate the
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.
Suppose that the government decides to maintain the number of quotas and let the market adjust.
(c) Calculate the
(i) price observed in the market,
(ii)the
(iii)deadweight loss
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