Q2

Question 2: Supply and Demand Application (20 MARKS) (a) Consider the following market information and solve for equilibrium price and quantity: D: P = 24 -2Q S: P = 6 +Q (b) Following on from (a), calculate the size of the consumer and producer surplus. You may wish to illustrate this market. (c) Assume that policy makers now apply a price floor of $18 to this market: Pmin = $18. Calculate quantity demanded, quantity supplied the size of the resulting surplus (excess supply). (d) Following on from (c), calculate the size of the minimum deadweight loss caused by this intervention into the market. You may wish to illustrate this market. (e) A village holds a parcel of land in common which is available for villagers to graze bison. Five residents currently have the $50 required to purchase a calf and intend to sell the adult bison in one year. The price a villager will get for a bison depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of bison calves, sent onto the commons, as shown below. Number of Bison on the commons Price per Bison in one year ($) 80 74 64 UI A W N 60 54 Currently, all five villagers intend to purchase a calf and graze it. Assume that villagers can purchase government bonds, instead, for $50, which return 40% in one year. What would you advise the villagers to do, to optimise the village's return? Explain your answer. glish (Australia) FocusQuestion 2: Supply and Demand Application (20 MARKS) (a) Consider the following market information and solve for equilibrium price and quantity: D: P = 24- 2Q S: P = 6 +Q (b) Following on from (a), calculate the size of the consumer and producer surplus. You may wish to illustrate this market. (c) Assume that policy makers now apply a price floor of $18 to this market: Pmin = $18. Calculate quantity demanded, quantity supplied the size of the resulting surplus (excess supply). (d) Following on from (c), calculate the size of the minimum deadweight loss caused by this intervention into the market. You may wish to illustrate this market. (e) A village holds a parcel of land in common which is available for villagers to graze bison. Five residents currently have the $50 required to purchase a calf and intend to sell the adult bison in one year. The price a villager will get for a bison depends on the amount of weight it gains while grazing on the commons, which in turn depends on the number of bison calves, sent onto the commons, as shown below. Number of Bison on the commons Price per Bison in one year ($) 80 N 74 3 64 60 UT 54 Currently, all five villagers intend to purchase a calf and graze it. Assume that villagers can purchase government bonds, instead, for $50, which return 40% in one year. What would you advise the villagers to do, to optimise the village's return? Explain your answer. (Australia) E Focus ED