Quantity Demanded

130

104

90

82

53 Quantity Supplied

42

45

60

90

95

100

120

Price ($)

4

5

6

7

8

9

a)Instead of imposing a tax, the government now decides to control the market by setting a price floor at $7 and purchases any surplus. Estimate the budget in financing this program. [10 marks]

b)Suppose that the government can determine a tax rate that raises the market price to $7 as in part A, from an economic point of view, which intervention, tax or price floor, is better. Explain your answer. [5 marks]