Question

Suppose the market for potatoes can be expressed as follows:                                 

Demand: QD = 400 – 16P

Supply: QS = –40 + 4P

a) Calculate the equilibrium price and equilibrium quantity.   

b) Suppose the government sets a price ceiling of $14 per unit, what quantity demanded and quantity supplied would be realized?   

c) Neatly sketch a diagram to represent parts a and b on a single graph.

- Make sure to illustrate the equilibrium price and quantity, the price ceiling, and the actual quantity that would be sold.

- Identify on the graph the region that would represent the deadweight loss the results from the imposition of the price ceiling.

d) Calculate the deadweight loss that results from the imposition of the price ceiling.   

e) If the government sets a price ceiling of $30, what would be the deadweight loss? Use three sentences or less to explain you answer.

Please answer all parts by showing the steps.

Answer 1