Question

6. Another sparse medical good is the ventilator. Ventilators protect organs by providing oxygen and removing carbon dioxide from the body for patients with difficulty breathing. Suppose there was a price support for ventilators to help producers. Consider the market demand for ventilators to be Q = 14000 – 10p and the market supply to be Q= 2.5p. Additionally, allow the government to impose a deficiency-payment price support at p= $1200. (a) (16 points) Without the price support, what is the equilibrium price and quantity? (b) (16 points) What is the producer and consumer surplus at the equilibrium above? (c) (8 points) How much does the government spend with the price support?

Answer 1

Produm suples - Area of A B C D = X base x height -** (280-07 X (1120 -0) $ 1,568,000 Consun suply - Area of A ABC = I x base Xheight = Ex (280-0) x (1400-1120) = $. 392, 0800 = e Now, at puce support P = $1200, quantity demanded Q = 14000-lop =) Q = 14000 - (10 X (10 X 1200) 200 nits 3000 quantity Subblica Q= 2.57- (2.58/200) (300-200 suples Haces heres 2800 Huces government has to buy the suples anont at pure p = $1200. Huce, government spuding with the price. support a 2800 X 1200 = $3,360,000 CS Scanned with CamScanner

Now, at tu puce support Producs suples. d2 Now, consm suples = Area of AATU = £ X base height 3x120-0) x (14001/200) - $20,000 Hice, consum suply decreases by $ C 392,000 - 20, 0) < $ 372,000 3 = Area of ATED = Ź X base x heigut -{(3.00-0X(1200-0) $ 180,000 Hace, produces suples increasy by: $ Hilo0_001 - 392,010 © $ (1,800,00- 1,568,000 Ĉ232,00 deadweight loss - Area of JUZMU Area of Auez Now, Now, area of O UZMU = base Xheight ( 3000–200) - XC 1200-0) $ 3,360,000 Area of Aucz = 2x base x height = £x (3 200) XC/200 -1120) $ 112,000 - 2 CS Scanned with CamScanner

Hunce, deadweight loss $ ( 3,360,000 1/ 2,000) $ 3, 248,000 C CS Scanned with CamScanner