Exercise 2 Consider a competitive market for widgets where demand and supply are, respectively, % = 180 5 and & = 4. a) Compute the equilibrium price and quantity. Find the aggregate surplus and represent it graphically.

b) Assume that due to producers' pressures, the Government introduces a production quota equal to = 60. Find the new price and the quantity exchanged on the market and represent them graphically. Explain why the producers may have an interest in the introduction of a production quota that would limit their output?

c) Compute the aggregate surplus after the introduction of the quota and compare it with the aggregate surplus in absence of quotas. d) What could be an alternative intervention that to produce exactly the same results and the same distribution of surplus as the introduction of the quota at point b)?

e) Assume now that the Government wants to adopt a price support program. How much should it buy to implement the same price and equilibrium quantity as in b)? Compute the new aggregate surplus in this case and compare it with that of point c).