1. The old demand was Qd = 180 – 2P. Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190 – 2P. The government is trying to decide between two options. Suppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72. Explain the following: a. Which of the two options would be preferred by the producers? b. Which of the two options would be preferred by society as a whole?

1. The old demand was Qd = 180 – 2P. Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190 – 2P. The government is trying to decide between two options. Suppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72. Explain the following: a. Which of the two options would be preferred by the producers? b. Which of the two options would be preferred by society as a whole?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter6: Elasticities

Section: Chapter Questions

Problem 16P

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1. The old demand was Qd = 180 – 2P. Due to good weather, there is an increase in the demand for the good. The new demand equation is Qd = 190 – 2P. The government is trying to decide between two options. Maintain the number of quotas and let the market adjust, or Maintain the price support and increase the number of quotas. a. Suppose that the government decides to maintain the number of quotas and let the market adjust. Calculate the following: Price observed in the market The consumer surplus The producer surplus Deadweight loss b. Suppose now that the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72. Calculate the following: The consumer surplus The producer surplus Deadweight loss
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