Question

The demand and supply for a good are respectively P = 20 – QD and P = - 4 + 2QS. 17) Determine the equilibrium quantity in the absence of any intervention by the government. 18) Determine the equilibrium price in the absence of any intervention by the government. Suppose the government imposes a quota equal to Q = 6. 19) Determine the maximum price consumers are willing to pay to buy the good when Q = 6. 20) Determine the minimum price producers are willing to accept to supply the good when Q = 6. 21) Determine the deadweight loss due to the quota. 22) Determine the quantity demanded. 23) Determine the quantity supplied. 24) Determine the deadweight loss due to the price floor

Answer #1

17) Equilibrium occurs when qd = qd

20 - q = -4 + 2q

24 = 3q

q = 8

equilibrium quantity in the absence of any intervention by the government is 8 units

18) P = 20 - 8 = $12

equilibrium price in the absence of any intervention by the government is $12 per unit

19) the maximum price consumers are willing to pay to buy the good when Q = 6, is P = 20 - 6 = $14

20) the minimum price producers are willing to accept to supply the good when Q = 6 is -4 + 2*6 = $8

21) DWL = 0.5*(14 - 8)*(8 - 6) = $6

(No price floor given for questions beyond 21)

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