ECON 517 - Microeconomic Theory for MPP Problem Set 5 1. Market Analysis, Competitive Equilibria, and Welfare in the Corn Market a. Market demand for a bushel of corn is given by Q" = 20 - 2P and market supply for a bushel of corn is given by Q'S = P - 1. Q is measured in millions of bushels. Find the competitive equilibrium price and quantity and graph it below [Be sure to label P* and b. Find producer and consumer surplus mathematically as well as total surplus. Identify which areas within your graph above correspond to CS and PS. [It may be helpful to label points of intersection between your curves and each other/axes/etc. in order to designate these areas) .c. Say after the 2016 election, ethanol producers are successful in lobbying Congress to impose a price ceiling on the market for corn. The price cannot go above $5/bushel. Identify the new Q that exists after the price ceiling is imposed (show it in the graph as Qc). What are the new PS and CS (both calculate and state where each is located in the graph)? d. Compared to the original PS and CS, is each group made better or worse off by the policy? What is the new total surplus? What is the term describing the difference between the new TS and the old TS in this case? e. Say instead that corn farmers are successful in lobbying for a price floor of $7. What is the implications of this floor on Q and on total surplus? 2