a. The equilibrium price and quantity for sugar are:
Qs = 125P + 100,
Qd = Qs,
1,000 - 1,000P = 125P + 100,
1,125P = 900,
P = 0.8,
Q = 125×0.8 + 100 = 200 units.
The consumer surplus is:
CS = 0.5×(1 - 0.8)×200 = 20.
b. If the government wishes to subsidize sugar production by placing a floor on sugar prices of $0.20 per pound, then it is a non-binding price floor, as the equilibrium price is higher, so there will be no deadwight loss.
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