Use the accompanying graph to answer these questions.

a). Suppose demand is D and supply is S0. If a price ceiling of $6 is imposed, what are the resulting shortage and full economic price?

b). Suppose demand is D and supply is S0. If a price floor of $12 is imposed, what is the resulting surplus? What is the cost to the government of purchasing any and all unsold units?

c). Suppose demand is D and supply is S0 so that the equilibrium price is $ 10. If an excise tax of $6 is imposed on this product, what happens to the equilibrium price paid by consumers? The price received by producers? The number of units sold?

d). Calculate the level of consumer and producer surplus when demand and supply are given by D and S0 respectively.

e). Suppose demand is D and supply is S0. Would a price ceiling of $2 benefit any consumers? Explain.

Transcribed Image Text:

Price of X (S) 20 as 18 16 14 12 10 8 4 Quantity of Good X 1 2 3 4 6 2. Price of X (S) 20 as 18 16 14 12 10 8 4 Quantity of Good X 1 2 3 4 6 2.

Answer rating: 100% (QA)

ANSWER STEP 1 a The diagram given below shows the effect of price ceiling on the economy When demand curve is D and Supply curve is S 0 then equilibrium is attained when price of commodity is 10 and q... View the full answer