Unit 7-Market Intervention: Price Ceilings and Floors, Taxes Suppose that the demand curve for coffee is and the supply curve is . Draw the supply and demar curves below. 10 F 8 5- 3. 2. -1 1 2 345 6789 10 1. What is the equilibrium price and quantity? 2. What is total surplus, consumer surplus, and producer surplus? 3. Suppose the government implemented a price floor at $7 per cup of coffee. 1, a. Identify the new quantities demanded and supplied and any surplus or shortage of coffee. What will the new quantity be in the coffee market? b. What is total surplus with the price floor? How much deadweight loss was created, if any? What is consumer and producer surplus? Did either consumer or producer surplus change? In what direction? Discuss in your group why consumer and producer surplus did or did not C. change. 4. Suppose the government implemented a price ceiling at $3 per cup of coffee. a. Identify the new quantities demanded and supplied and any surplus or shortage of coffee. What will the new quantity be in the coffee market? 5. Suppose the government imposed a $2 tax on the sellers. What would the new equilibrium price and quantity be? What it the total tax paid by the sellers? By the buyers? Multiple choice questions 1. What would happen if the government implemented a price floor at $3? a. The price is $3, the quantity demanded is 7 cups of coffee and 3 cups are supplied, so there is a shortage. b. The price is $3, the quantity demanded is 3 cups of coffee and 7 cups are supplied, so there is a surplus. The price is $5 and the quantity demand is 5 and the quantity supplied is 5. C. 2. What would happen if the government implemented a price ceiling at $6? a. The price is $6, the quantity demanded is 4 cups of coffee and 6 cups are supplied, so there is a shortage. b. The price is $6, the quantity demanded is 6 cups of coffee and 4 cups are supplied, so there is a surplus. c. The price is $5 and the quantity demand is 5 and the quantity supplied is 5. 3. What if the government imposed a $1 tax per cup of coffee? a. Consumers pay $6 for each cup of coffee, sellers receive $5., and 4 cups of coffee are consumed.