Suppose that budding economist Buck measures the inverse demand curve for toffee as P = $100...

Suppose that budding economist Buck measures the inverse demand curve for toffee as P = $100 – Q^D , and the inverse supply curve as P = Q^s. Buck’s economist friend Penny likes to measure everything in cents. She measures the inverse demand for toffee as P = 10,000 – 100Q^D, and the inverse supply curve as P = 100Q^s.

a. Suppose market participants successfully lobby congress for a $45 price ceiling. What is demand at $45? What is supply at $45? Does the market clear at $45?\

b. What is consumer surplus at $45? What is producer surplus at $45? What is economic welfare at $45 dollars? Calculate a deadweight loss if there is one at $45.

c. Suppose producers successfully lobby congress for a $55 price floor. What is demand at $55? What is supply at $55? Does the market clear at $55?

d. What is consumer surplus at $55? What is producer surplus at $55? What is economic welfare at $55 dollars? Calculate a deadweight loss if there is one at $55.

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Expert Solution

Rahul Sunny answered 1 year ago

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