Homework Answers
Market quantity is determined at
Qs = Qd
-16 + P = 92 - 2P
3P = 108
P = 36
Q = -16 + 36 = 92 - 2*36 = 20 units
At P = 40, Qs = -16 + 40 = 24 units and Qd = 92 - 2*40 = 12 units.
a) Cost to the government = surplus at P = 40 multiplied by price floor.
= (Qs - Qd)*40
= (24 - 12)*40
= $480.
b) DWL = subsidy / surplus cost - area of triangle formed at surplus
= 480 - 0.5*(40 - 36)*(24 - 12)
= 480 - 24
= $456
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