PROBLEM:

Consider a competitive market characterized by the following supply and demand formulas:

Demand: P = 105 - 0.25Q_D

Supply: P = 0.275Q_S

(a)Show the supply and demand curves and the equilibrium price and quantity in this market in a diagram.

(b) With the aid of a diagram, carefully explain what would happen in this market if the government were to impose a price floor of $80 per unit in this market. As part of your answer, calculate the size of the deadweight loss associated with this price control. (Remember, the deadweight loss is approximated by the size of a triangle in you Supply and Demand diagram).

(c)With the aid of a diagram, carefully explain what would happen in this market if the government were to impose a price ceiling of $30 per unit in this market. As part of your answer calculate the size of the deadweight loss associated with this price control.