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Question 2 A market is described by the following supply and demand curves: Supply: P=0.25Q Demand: P=300-0.75Q (a) Solve for the equilibrium price and quantity

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Question 2 A market is described by the following supply and demand curves: Supply: P=0.25Q Demand: P=300-0.75Q (a) Solve for the equilibrium price and quantity and calculate the total economic surplus with a diagram. (5 marks) (b) Suppose government sets a price floor of $90. With the price regulation, calculate with a diagram the sizes of shortage (or surplus), consumer surplus, produce surplus and deadweight loss. (10 marks) (c) Instead of a price floor, government regulates the price by a price ceiling of $90. Predict the change of market efficiency if the government imposes a price ceiling of $90. (Suggested word count: 200-250 words) (5 marks) (d) Instead of a price control, government levies a $20 excite tax on producers. Formulate the new supply curve and solve for the new equilibrium price and quantity. Calculate with a diagram the tax revenue and the tax incidences for both producers and consumers. Discuss how buyers and sellers share the tax burden by applying relevant theories and an appropriate diagram. (Suggested word count: 300 words) (10 marks)

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