Question
Q4) For the next three questions, use the following information. The market for gizmos is competitive, with an upward sloping supply curve and a downward
Q4) For the next three questions, use the following information. The market for gizmos is competitive, with an upward sloping supply curve and a downward sloping demand curve. With no government intervention, the equilibrium price would be $25 and the equilibrium quantity would be 10,000 gizmos. Consider the following programs of government intervention:
Program I: The government imposes an excise tax of $2 per gizmo
Program II: The government provides a subsidy of $2 per gizmo for gizmo producers.
Program III: The government imposes a price floor of $30.
Program IV: The government imposes a price ceiling of $20. Program V: The government allows no more than 8,000 gizmos to be produced.
a)Which of these programs would lead to a less than 10,000 units exchanged in the market? Briefly explain.
b)Under which of these programs will the market clear? Briefly explain.
c)Which of these programs would surely lead to an increase in consumer surplus? Briefly explain.
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