Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190 – 2P. The government is trying to decide between two options: Maintain the number of quotas and let the market adjust, or Maintain the price support and increase the number of quotas. Suppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72. Calculate: i) the consumer Surplus ii) the producer surplus iii) deadweight loss HINT: Sketch the supply and demand equations.
Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190 – 2P. The government is trying to decide between two options: Maintain the number of quotas and let the market adjust, or Maintain the price support and increase the number of quotas. Suppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72. Calculate: i) the consumer Surplus ii) the producer surplus iii) deadweight loss HINT: Sketch the supply and demand equations.
Chapter3: The Market And Price System
Section: Chapter Questions
Problem 3E
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Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190 – 2P. The government is trying to decide between two options:
Maintain the number of quotas and let the market adjust, or
Maintain the price support and increase the number of quotas.
Suppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72. Calculate:
i) the consumer Surplus
ii) the producer surplus
iii)
HINT: Sketch the supply and demand equations.
Which of the two options would be preferred by the producers?
Which of the two options would be preferred by society as a whole?
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