A market has a demand function given by the equation Qd = 180 - 2P, and a supply function is given by the equation Qs = -15 + P. The market is government-regulated, with price support per unit and production quotas. (NOTE: A production quota restri
A market has a
equation Qd = 180 - 2P, and a supply function is
given by the equation Qs = -15 + P. The market
is government-regulated, with price support per unit and production quotas. (NOTE: A production quota restricts the quantity of the good that can be produced. Firms are not allowed to produce more than the quota)
(a) If the price is $72 per unit, what production quota is needed to ensure no shortages or surpluses? (HINT: Sketch the
(b) Considering the price support and the quota, calculate
(i) the
(in) the
(In) 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 price support and increase the number of quotas.
Crinnamathemarineni
danidan maintain
Suppose the government decides to maintain the number of quotas and adjust the market.
(HINT: Sketch the supply and demand equations.)
(c) Calculate the
(i) price observed in the market,
(ii) the consumer surplus,
(iti) the producer surplus,
(iv) deadweight loss,
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,
(ii) the producer surplus,
(ill) deadweight loss,
(e) Which of the two options would the producers prefer?
(f) Which of the two options would be preferred by society
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