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5. Use the graph of rice production below to answer the following questions. $10 8 4 2 2 4 6 8 10 12 Quantity per period (millions of kilos) a) Suppose that the government introduced a price floor of $8 per kilo. How much will consumers spend in total and how much will the government spend in total? [2 marks]b) Suppose that instead of a price floor, a $4 price ceiling is introduced. How much rice will be produced? [2 marks] c) Suppose instead that a $1.50 subsidy is introduced on the rice. What is the new equilibrium price and quantity traded? [2 marks] d) Suppose instead that a $1.50 tax is introduced. What is the new equilibrium price and quantity traded? [2 marks] 6. Identify and briefly describe the determinants of Demand. [5 marks]Please answer A, B, C, and D. Thank you.

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Answer #1

5. A) Consumer spending = Price x Quantity bought at price floor = 8 x 6 million = 48 million

Government spending = P x (Qs - Qd) = 8 x (9 - 6)million = 8 x 3 million = 24 million

B) 5 million rice is produced

$10 Price floor 8 Price ceiling 4 2 D1 4 Quantity 6od produced at $ 4 12 2 8 Qs Quantity per period (millions of kilos)

c) New equilibrium price = $ 5 and Equilibrium quantity = 7.5 million

$10 S2 8 4 2 2 4 6 8 10 12 Quantity per period (millions of kilos)

d) Equilibrium price = $ 7 and equilibrium quantity = 6.5 million

S2 8 Tax 6 4 2 2 4 6 8 10 12 Quantity per period (millions of kilos)

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