7. Suppose the supply curve for butter is:

Q₅ = 500 + 2P

Where Q_sis the quantity supplied of butter (in millions of pounds per year), and P is the price of butter (in dollars per pound).

a.If the demand for butter is a vertical line at Q_d = 504 million pounds per year. And, if the government imposes a price floor of $1 per pound on butter, will there be an excess supply or an excess demand and how big will it be?

b.If the government's price floor is set $3 per pound, will there be an excess supply or demand for butter and how big will it be?

c.Under conditions described in part a, what is the price elasticity of demand for butter? Do you agree this is a realistic value for this price elasticity? Explain.

Your response should be at least 75 words in length.