Consider a perfectly competitive market in which the market demand curveis Dd =10-Pd andsupplyisQs =2Ps.
a) Find the equilibrium price and quantity on this market.
b) Suppose the govt imposes the price ceiuling of 3$ per unit. How much is supplied?
c) Suppose that alternatively govt imposes production quota of 6 units. What is the market price after this intervention? Is the quantity supplied with price ceiling greater, les or equal as the quantity with quota?
d) Under price control, assuming the rationing is as EFFICIENT as possible and under the quota the production allocation is as EFFICIENT as possible, in which of the two cases is the deadweight loss larger?
e) Assuming that rationing under price control is as INEFFICIENT and production allocation under quota as EFFICIENT as possible, in which of the two cases is the deadweight loss larger?
f) Assuming that rationing under price control is as INEFFICIENT and production allocation under quota as INEFFICIENT as possible, in which of the two cases is the deadweight loss larger?