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Question 3 a. What is price ceiling and why will the government implement such a policy?...

Question 3

a. What is price ceiling and why will the government implement such a policy?

b. The market demand and supply equations for a commodity are

QD = 50 - 10P

QS = 20 + 2.5P

i. What is the equilibrium price and equilibrium quantity?

ii. Suppose the government imposes a price ceiling on the commodity of $3.00 and demand increases to QD = 75 - 10P.What is the impact on the market of the government’s action?

iii. In a single diagram, illustrate your answers to parts a and b.

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