The government has decided to impose a price ceiling on a staple food item, Grain-O, to...

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The government has decided to impose a price ceiling on a staple food item, "Grain-O", to make it more affordable for the general population. Before the imposition of the price ceiling, the market for "Grain-0" was perfectly competitive, and the equilibrium price was $20 per unit, with an equilibrium quantity of 1000 units. The government sets the price ceiling at $15 per unit. As a result of this policy, the quan- tity demanded for "Grain-O" increases to 1200 units and the quantity supplied of "Grain-O" decreases to 800 units. To help consumers, the government decides to compensate producers with $5 per unit of "Grain-O" sold. Answer the following questions: 1. Draw a graph to illustrate the market for "Grain-O". Include the original equilibrium position and the new market situation post-price ceiling implementation. Label the price ceiling, the new quantity demanded, and the new quantity supplied. 2. Calculate the excess demand (shortage) for "Grain-O" resulting from the price ceiling. Explain your calculation process. 3. Illustrate on a graph how the government's compensation of $5 per unit affects the supply of "Grain-O". Discuss the expected quantity of "Grain-O" exchanged in the market following this intervention. 4. With the government maintaining the price ceiling and providing a $5 subsidy per unit sold, analyze the following: Calculate the excess demand, determine the revenue for producers, compute the total expenditure for consumers and compute the total cost to the government due to the subsidy. Provide detailed explanations for each calculation. 5. Given what you know about consumer demand: what is the price elasticity of demand for "Grain-O"? The government has decided to impose a price ceiling on a staple food item, "Grain-O", to make it more affordable for the general population. Before the imposition of the price ceiling, the market for "Grain-0" was perfectly competitive, and the equilibrium price was $20 per unit, with an equilibrium quantity of 1000 units. The government sets the price ceiling at $15 per unit. As a result of this policy, the quan- tity demanded for "Grain-O" increases to 1200 units and the quantity supplied of "Grain-O" decreases to 800 units. To help consumers, the government decides to compensate producers with $5 per unit of "Grain-O" sold. Answer the following questions: 1. Draw a graph to illustrate the market for "Grain-O". Include the original equilibrium position and the new market situation post-price ceiling implementation. Label the price ceiling, the new quantity demanded, and the new quantity supplied. 2. Calculate the excess demand (shortage) for "Grain-O" resulting from the price ceiling. Explain your calculation process. 3. Illustrate on a graph how the government's compensation of $5 per unit affects the supply of "Grain-O". Discuss the expected quantity of "Grain-O" exchanged in the market following this intervention. 4. With the government maintaining the price ceiling and providing a $5 subsidy per unit sold, analyze the following: Calculate the excess demand, determine the revenue for producers, compute the total expenditure for consumers and compute the total cost to the government due to the subsidy. Provide detailed explanations for each calculation. 5. Given what you know about consumer demand: what is the price elasticity of demand for "Grain-O"?

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1 Graph A The original equilibrium price was 20 per unit and the equilibrium quantity was 1000 units ... View the full answer