Question

10. Consider a market where supply and demand are given by Q10 P and -56 2P. Suppose the government imposes a price floor of $25, and agrees to purchase any and all units consumers do not buy at the floor price of $25 per unit. a. Determine the cost to the government of buying firms unsold units. b. Compute the lost social welfare (deadweight loss) that stems from the $25 price floor.

Answer 1

uiven that dt. ranket epuidii out tande Calculatad endemand Supply d. Px 422 rs the equil bn poice equilibuum guantity is calculated bid Substituting paice, in an on or supply eguahe 12. units aEpfect ot price Ploor wher a puce Plear of tas is impand eveu unit shoudd be sold at tar, So at her ligher pvice loel, the Supplet

twil' tb 듸.PPILĪ tan tt It can be. calculated by th nes pricesi e9aa tiens upply and damand Quantity suppl at pice Ploor 1o12 Quan fit님 dumarded at price flaa: sc-aex at pice floor-10425 Is cuni'ts 6 units So, the gevenment shouldy unold unite cuns ofdl unitsnes -d ne cost fgevenm Dead segtlass is en by Vex charge in pruice x change in guartity demanded Dead weight lass9. ' The lass of Social el Paie 925 is the amount that the govenment Pays tra units Pe its economic Palrc