Question
Please answer questions a, b1 and b2. A market has a demand function given by the equation Qd = 180 - 2p, and a supply
Please answer questions a, b1 and b2.
A market has a demand function given by the equation Qd = 180 - 2p, and a supply function given by the equation Qs = -15 + P. The market is government regulated with a price support per unit and production quotas.
(a) If the price is set at $72 per unit, what production quota is needed to make sure there are no shortgages or surpluses?
(b) Due to good weather, there is an increase in demand for the good. The new demand equation is Qd = 190 - 2P. The government is trying to decide between two options:
- Maintain the number of quotas and let the market adjust, or
- Maintain the price support and increase the number of quotas.
Suppose that the government decided to maintain the number of quotas and let the market adjust calculate:
- price observed in the market
- the consumer surplus
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