The demand and supply for Q are given, respectively, by: QD = 500 – 20P (demand), QS = -100 + 10P (supply), where Q is quantity and P is measured in…
The demand and supply for Q are given, respectively, by:
QD = 500 – 20P (demand),
QS = -100 + 10P (supply),
where Q is quantity and P is measured in dollars per unit.
(a) Graph the demand and supply equations.
(b) What are the equilibrium price and quantity?
(c) Assuming the demand and supply curves given above, suppose that a price support of $22 were
set by the government. What are the new quantity supplied and quantity demanded given the $22
price? How much Q will the government buy? Show this on your graph.
(d) Calculate the welfare measures when moving from the free-market to the price-support
solution—specifically, find measures for changes in consumer surplus, producer surplus, taxpayer
cost, and the deadweight loss.
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