The market demand and supply functions for pork are: Q_D = 2,000 - 500P and Q_s
ID: 1214109 • Letter: T
Question
The market demand and supply functions for pork are: Q_D = 2,000 - 500P and Q_s = 800 + 100P. To help pork producers, the U.S. Congress is considering legislation that would put a price floor at $2.25 per unit. a. If this price floor is implemented, how many units of pork will the government be forced to buy to keep the price at $2.25? b. How much will the government spend in total? c. How much does producer and surplus increase? d. How has this policy changed economics efficiency in this market? Explain. Be sure to show your work and explain and graph your results.Explanation / Answer
Ans a) price floor p= 2.25
Qd=2000-500P= 2000-500(2.25)= 2000- 1125= 875
Qs= 800+100P = 800+ 100(2.25) = 1025
Supply is more than demand, so excess supply will be purchased by govt
No of units to be purchased by govt= 1025-875= 150
B)govt spending in total = 150* 2.25= 337.5
C) equilibrium is determined whereQd=Qs
2000-500P= 800+100P
1200= 600P
P= 2
Q= 2000-500(2)= 1000
Producer surplus will increase by 1000*0.25 + (1/2)*25*0.25= 250+ 3.125= 253.125
Ans d) economic efficiency in this market will change as market will not operate at most efficient or equilibrium point
So this interference from govt in the form of price ceiling will lead to production at inefficient point
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.