Question

1. Suppose the following supply and demand schedules for diesel cars

- Price of Diesel Car Quantity demanded Quantity supplied
1,000 120 20
1,500 100 30
2,000 80 40
2,500 60 60
3,000 40 70
a) What are the equilibrium price and quantity of diesel cars?

2. Suppose the government imposes a price floor, raising 500 dollars above the equilibrium price. What is the new market price? How many cars are sold?

2. Show and explain changes in consumer and producer surplus because of the price floor using a graph.

3. Suppose now the government imposes a price ceiling, raising 500 dollars above the equilibrium price. What is the new market price? How many cars are sold?

Answer 1

Price of diesel car $	Quantity demanded	Quantity supplied
1000	120	20
1500	100	30
2000	80	40
2500	60	60
3000	40	70
a)
Equilibrium price is $3,000 and quantity is 60 cars. This is determined when quantity supplied = quantity demanded.
2)
Price floor is the minimum price below which a product cannot be sold.
The equilibrium price is $2500, so $500 above the equilibrium price is $3,000. This is the price floor.
$3,000 is the new price, quantity sold is 40 cars.