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Price A H D Pe Pm D1 Qs2 Qe ad2 Quantity Question 5 The supply and demand for peanuts are given by QD = 900-
Price A H D Pe Pm D1 Qs2 Qe ad2 Quantity Question 5 The supply and demand for peanuts are given by QD = 900- 10P and Q5 = 5P, where P is price per bag (in pence) and Q measures bags per day. (It would be useful to illustrate the factors noted in a demand and supply diagram to make aspects clearer to see). a) What is the equilibrium price and quantity? b) Calculate consumer and producer surplus c) Suppose the government imposes a price floor of 70p per bag. Is there a shortage or surplus of peanuts and, if so, what is the size? d) Calculate consumer and producer surplus with the price floor. e) What is the size of the deadweight loss? (15 marks)
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