Part A

Question 6 A market has a demand function given by the equation Gd 2 180 2P, and a supply function given by the equation Qs : 1 5 + P. The market is government regulated with a price support per unit and production duotas. {NOTEA production quote is a restriction on the quantity of the good that can he produced. Firms are not allowed to produce more than the quote) {a} If the price is set at $?2 per unit, what production quota is needed to make sure there are no shortages or surpluses? An swe r: Considering the price support and the quota, calculate (i) the consumer surplus,(ii) the producer surplus,ii) deadweight lossDue to good weather, there is an increase in the demand for the good. The new demand equation is Gd 2 190 2P. The government is trying to decide between two options: - Maintain the number of quotas and let the market adjust, or I Maintain the price support and increase the number of quotas. Suppose that the government decides to maintain the number of quotas and let the market adjust. {c} Calculate the {i} price observed in the market, (ii) the consumer surplus,the producer surplusv) deadweight lossSuppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72. d) Calculate (i) the consumer surplus,\fii) deadweight loss(e) Which of the two options would be preferred by the producers? (f) Which of the two options would be preferred by society as a whole