the market for Gizmos is competitive, with an upward -sloping supply curve and a

Question

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 10000 Gizmos. consider the following programs of government interventions?

which of these programs would lead to less than 10000 units exchanged in the market ? briefly explain.

Program 1: the government imposes an excise tax of $2 per gizmos.

program 2: the government provides a subsidy of $2 per gizmo for gizmo producers.

program3: the government impose a price floor of $30.

program 4: the government impose a price ceiling of $20.

program 5) the governement allow no more than 8000 gizmos to be produced.

Explanation / Answer

Programs 1,3),5).

1) and 3) will lead to increase in cost of Gizmos, so discouraging demand and the equilibrium shift causes less than 10000 to be sold.

5) The supply itself is restricted at 8000, so clearly less than 10000 are exchanged.

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