2 Consider the market for DVDs of the movie Alien Inverse demand in the market is given by P 20 2Qd and the quantity supplied is Qs P 5, where the price is measured in dollars and both quantities are measured in thousands of units The state government has grown increasingly concerned about the negative effects that viewing fictional alien xenomorphs has on the psyche of the movie viewing public and is strongly considering an intervention into the market You have been brought on to help with your analytical skills (a)(7 marks) I think we should impose a strict limit on how many DVDs manufacturers can produce, says state premier Andrew Danielson I propose we make it illegal to produce more than 6,000 units of this dreadful DVD across the entire market What is the proposed policy called and will it have any effect on the market outcome Analyse this policy draw the resulting supply and demand graphs, calculate the equilibrium price, quantity traded, and find the exact numerical values for deadweight loss, consumer surplus, and producer surplus under this policy (b)(7 marks) Wait, no, continues Mr Danielson, 6,000 is not good enough That would be enough to give a DVD to every denizen of Collingwood and have some leftover That cannot stand, this movie is just too scary Let's limit production to 4,000 instead of 6,000 Analyse the proposed policy as in part (a) (c)(7 marks) Now I hear that my approval rating with small business owners is very low Let's consider something else instead I think 4,000 is a good number, not too scary But instead of making it illegal to produce and sell more than 4,000 units, let's make it illegal to buy more than 4,000 units across the entire market We can even issue rationing cards to make sure the policy is enforced Analyse the proposed policy as in part (a) What do you think this policy should be called (d)(4 marks) Using the concepts introduced in the subject this semester, discuss whether it is possible for government intervention in a market to lower or eliminate inefficiency rather than increase it If so, give an example

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2. Consider the market for DVDs of the movie Alien. Inverse demand in the market is given by P = 20 2Qd and the quantity

2. Consider the market for DVDs of the movie Alien. Inverse demand in the market is given by P = 20 2Qd and the quantity supplied is Qs = P 5, where the price is measured in dollars and both quantities are measured in thousands of units. The state government has grown increasingly concerned about the negative effects that viewing fictional alien xenomorphs has on the psyche of the movie-viewing public and is strongly considering an intervention into the market. You have been brought on to help with your analytical skills.

(a)(7 marks) "I think we should impose a strict limit on how many DVDs manufacturers can produce," says state premier Andrew Danielson. "I propose we make it illegal to produce more than 6,000 units of this dreadful DVD across the entire market." What is the proposed policy called and will it have any effect on the market outcome? Analyse this policy: draw the resulting supply and demand graphs, calculate the equilibrium price, quantity traded, and find the exact numerical values for deadweight loss, consumer surplus, and producer surplus under this policy.
(b)(7 marks) "Wait, no," continues Mr Danielson, "6,000 is not good enough. That would be enough to give a DVD to every denizen of Collingwood and have some leftover. That cannot stand, this movie is just too scary. Let's limit production to 4,000 instead of 6,000." Analyse the proposed policy as in part (a).
(c)(7 marks) "Now I hear that my approval rating with small-business owners is very low. Let's consider something else instead. I think 4,000 is a good number, not too scary. But instead of making it illegal to produce and sell more than 4,000 units, let's make it illegal to buy more than 4,000 units across the entire market. We can even issue rationing cards to make sure the policy is enforced." Analyse the proposed policy as in part (a). What do you think this policy should be called?
(d)(4 marks) Using the concepts introduced in the subject this semester, discuss whether it is possible for government intervention in a market to lower or eliminate inefficiency rather than increase it. If so, give an example.