In a perfectly competitive market, the market demand curve is given by Qd = 200 - 5Pd , and the market supply curve is given by Qd = 35Ps .
a) Find the equilibrium market price and quantity demanded and supplied in the absence of price controls.
b) Suppose a price ceiling of $2 per unit is imposed. What is the quantity supplied with a price ceiling of this magnitude? What is the size of the shortage created by the price ceiling?
c) Find the consumer surplus and producer surplus in the absence of a price ceiling. What is the net economic benefit in the absence of the price ceiling?
d) Find the consumer surplus and producer surplus under the price ceiling. Assume that rationing of the scarce good is as efficient as possible. What is the net economic benefit in this case? Does the price ceiling result in a deadweight loss? If so, how much is it?
e) Find the consumer surplus and producer surplus under the price ceiling, assuming that the rationing of the scarce good is as inefficient as possible. What is the net economic benefit in this case? Does the price ceiling result in a deadweight loss? If so, how much is it? F
For the next three questions, use the following information. The market for gizmos is competitive, with an upward-sloping supply curve and a downward-sloping demand curve. With no government intervention, the equilibrium price would be $25, and the equilibrium quantity would be 10,000 gizmos. Consider the following programs of government intervention:
Program I: The government imposes an excise tax of $2 per gizmo.
Program II: The government provides a subsidy of $2 per gizmo for gizmo producers.
Program III: The government imposes a price floor of $30.
Program IV: The government imposes a price ceiling of $20.
Program V: The government allows no more than 8,000 gizmos to be produced.