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5 Price controls (15) a. Consider the market for potatoes! Graph the demand which is given by the function P=5-0.01Q and the supply which follows
5 Price controls (15) a. Consider the market for potatoes! Graph the demand which is given by the function P=5-0.01Q and the supply which follows the function P=0.5+0.005Q! Find the equilibrium price and quantity on the market! (2+2) b. The government wants to help the farmers, so it establishes a price floor at $1. Will it bind? (1) c. The government takes more radical measures and sets a price floor at $4! Will this result in a surplus or a shortage? Illustrate the price floor on your graph! Compute the new equilibrium price and quantity and mark them on the graph! (1+3) d. Mark the consumer surplus, producer surplus, and the deadweight loss on the market! (2) e. How much did the producer surplus change compared to the original equilibrium? To solve this question, you need to compute both the original and the new producer surplus! (2+2)
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