Question

In: Economics

Market supply and demand in a certain market are given by the following equations: Supply: Q...

Market supply and demand in a certain market are given by the following equations:

Supply: Q = 4P – 60

Demand: Q = 300 – 5P

(a) Compute consumer, producer, and total surplus in this market.

(b) The government offers a $9 per-unit subsidy for firms in this market. Compute consumer surplus, producer surplus, government revenue and deadweight loss in this new setting. Are firms better or worse off with the subsidy?

(c) Assume now that the government imposes a price ceiling of $25. Are consumers better or worse off after this policy is implemented? What is the deadweight loss?

(d) Suppose that the international price for this good is $50. Without government intervention, would this country import from or export to the rest of the world? How many units will be imported or exported? How much are the gains from trade?

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Expert Solution

Rahul Sunny answered 1 year ago
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