2. Suppose that the demand for scarves can be characterized by P = 7 - QD...

 

Transcribed Image Text:

2. Suppose that the demand for scarves can be characterized by P = 7 - QD and the supply of scarves can be characterized by P = 2+2Qs. a. Sketch the demand and supply curves. b. Compute the consumer surplus, producer surplus, and total surplus in this market. c. If the government sets a price ceiling of $6, how will this affect consumer surplus, producer surplus, and total surplus in this market? d. If the government sets a price ceiling of $4, how will this affect consumer surplus, producer surplus, and total surplus in this market? e. Why are the answers to parts (c) and (d) so different? 2. Suppose that the demand for scarves can be characterized by P = 7 - QD and the supply of scarves can be characterized by P = 2+2Qs. a. Sketch the demand and supply curves. b. Compute the consumer surplus, producer surplus, and total surplus in this market. c. If the government sets a price ceiling of $6, how will this affect consumer surplus, producer surplus, and total surplus in this market? d. If the government sets a price ceiling of $4, how will this affect consumer surplus, producer surplus, and total surplus in this market? e. Why are the answers to parts (c) and (d) so different?