Question
5. Consider again the market where the supply and the demand are given by Q s (P) = 100P and Q d (P) = 2000100P.
5. Consider again the market where the supply and the demand are given by Qs (P) = 100P and Qd (P) = 2000100P.
(a) Suppose the government imposes a price floor of Pf = 12. Assuming that the government buys any excess supply, find the consumer surplus, producer surplus, government revenue, and aggregate surplus. What is the deadweight loss (in comparison to the no intervention case)?
(b) Suppose the government imposes a price ceiling Pc = 8. What is the change in consumer surplus from the no intervention case?
(c) In general (i.e., do not restrict attention to the supply and the demand functions given above), will consumers always benefit from price ceiling?
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