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Consider a market where supply and demand are given by QXS = -18 + PX and...

Consider a market where supply and demand are given by QXS = -18 + PX and QXd = 81 - 2PX. Suppose the government imposes a price floor of $38, and agrees to purchase any and all units consumers do not buy at the floor price of $38 per unit. Assume that the government simply removes product from the market through its purchase.

a. Determine the cost to the government of buying firms’ unsold units. $____

b. Compute the lost social welfare (deadweight loss) that stems from the $38 price floor. $____

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Answer #1

Ans. a) The cost to the government of buying firms's unsold units is $570

b) Lost of social welfare ( deadweight loss ) = $75

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