1. Suppose that the market equilibrium price for a basic medical check-up is $400, in a market in which there is no health insurance. To encourage more people to get a check-up, the government mandates that the price of a check-up cannot be more than $100.

a. Is this a price floor or a price ceiling? Explain. (3 points)

b. Draw a graph to illustrate the implementation of this government policy. Explain what happens to the quantity of check-ups in this market as a result of this policy. (4 points)

c. What happens total producer surplus in this market? Show this change clearly on your graph and explain. (3 points)

d. What happens to total consumer surplus in this market? Show this change clearly on your graph. (3 points)

e. Has this policy been successful in achieving its objectives? Explain clearly. (3 points)

f. Can you think of a different policy that would likely be more successful at encouraging more people to obtain checkups? Explain clearly. (3 points)

g. Government intervention in markets is often justified on the basis of market failure ie. the inability of unregulated markets to produce a socially efficient outcome. Can you think of two reasons why the market for basic medical check-ups might be susceptible to market failure? (6 points)