Question

Suppose that the demand curve for organic tomatoes is Q = 120-10p, and the supply curve is Q=10p. The government imposes a price control of p = 4.

(a) Without government intervention, what is the equilibrium price and quantity?

(b) Without government intervention, what is the consumer surplus, producer surplus, and deadweight loss? Use a graph in your calculations.

(c) Is the price control a price ceiling or price floor? Why? With the price control, what is the new equilibrium price and quantity?

(d) With the price control, what is the new consumer surplus, producer surplus and deadweight loss? Use a graph in your calculations; you can apply the same graph in (b).

Answer 1

ANSWER Demand supply Q = o 120-lap top at equilibrium 120 Top 20p PF lol 120 220 6. 20 Pr $6. Qe stop loxo Q = bounits at equilibrium price $6 Quantity - 60 units demand wave and Consumer suspas - H is the area below the above the price line.. producer surplus - It is the area below the above the supply love price line aad

supply Dyre price floor Demand 12 24 36 48 60 72 80 84 96 108 120 Quantity (b) Consumer surplus 1 x C12-6) x (6o-o). - by 6X 60 = $180 Producer Surplus - ex (6-0) (606) - 4X EX 60 - $180 Dead weight loss O.

(0) the price celling is generally It is Set below Price the ceiling because equilibrium pace. with the price control new equilibrium pace is $4 and Quantity is 40 units. (d) price control. 84. Demond supply Q2 120 top - 120 toxy = 120-43 Q = Sounits Q = lol sox 4 - sho units supply. & New consumer suaplus - IX (128) X (40-0) 1x 4x4o $do. 2 (8-44 (400) 4x40 $160 8ot 160 so consumer Surplus - $240. producer (40-0) Surplus = X(4-6) 1 x 4 x 40 288o.