Answer to Question #275815 in Microeconomics for tarun

Question

In a perfectly competitive market, the market demand curve is , and the market supply curve is .

(a)   What is the equilibrium price and quantity in the absence of government intervention? (2 marks) (max 200 words)

(b)   Consider two possible government interventions: (1) A price ceiling of $1 per unit; (2) a subsidy of $5 per unit paid to producers. What are the prices in each of these interventions (2 marks) (max 200 words)? What are the quantities supplied and demanded under each government intervention? (2 marks) (max 200 words)

(c)    How will consumer surplus differ in these different government interventions? (2 marks) (max 200 words)

(d)   For which form of intervention will we expect the product to be purchased by consumers with the highest willingness to pay? (2 marks) (max 200 words)

(e)   What is deadweight loss. Explain (1 mark) (max 50 words)

(f)    Which government intervention results in the lower deadweight loss and why (2 marks) (max 200 words)?Explain with diagram (2 marks) (max 200 words)

Answer 1

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