Question
Imagine that the market for fish is characterized by the following demand and supply equations: P = 12 - 0.2Qd (demand) P = 3 +
Imagine that the market for fish is characterized by the following demand and supply equations:
P = 12 - 0.2Qd (demand) P = 3 + 0.01Qs (supply) Where P = price of fish per pound; Q = quantity of fish in pounds
a) What is the market equilibrium price and quantity traded in the market?
b) Now, suppose that the government decides to set the price of fish at $3.50 per pound, show how this action would affect the quantity of fish demanded and supplied in the market. Find the shortage or surplus in the market.
c) Suppose now that, in order to help the poor, the government wants the price of $3.50 to become the new free market equilibrium price, and decides to achieve this by giving fish farmers a subsidy for each pound of fish supplied. Can you calculate how much subsidy per pound it would take to achieve this goal?
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