Suppose the market for rice can be described by the following equations: Demand: Qd=5500-5P Supp
Question: Suppose the market for rice can be described by the following equations:
Demand: Qd=5500-5P
Supply: Qs = 6P
a) Plot the curves on a graph. What is the market equilibrium price and quantity?
b) What are the Consumer Surplus and Producer Surplus in the market equilibrium?
c) If the government establishes a price floor of $700, how many rice will be sold? How much excess supply we will have?
d) Suppose the market is currently in equilibrium. If the government establishes a price floor of $700 but doesn’t purchase any excess supply, what is the new consumer surplus and producer surplus? What is the deadweight loss of this policy? Indicate the change in
the consumer surplus and producer surplus on the graph.
e) If the government establishes a price floor of $700 and purchases any production
surplus, what will be the producer surplus and the consumer surplus now? What is the
deadweight loss? Show your results on the graph.
Deliverables: Word Document
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