The Chief Medical Officer has advised the government that consumption of widget-corn improves the survival rate of COVID-19 by 20%. Suppose the supply and demand functions for widget-corn are: QD = 100 – 5P (1) QS = 5P. (2) P is the price in dollar and Q is the quantity in kilograms. a. Determine the market equilibrium price and quantity of widget-corn? b. Calculate the consumer surplus, producer surplus, and total economic surplus at the market equilibrium. c. Having confirmed the positive impact of widget-corn consumption on COVID-19 patients, the government has ordered widget-corn sellers to charge $5 per kilogram. (i). What type of price regulation policy? Briefly explain. (ii). Calculate the impact of the policy on the quantity of widget-corn supplied and demanded. (iii) Explain the impact of the policy consumer surplus, producer surplus, and total economic surplus. (iv) Is the outcome of the government’s policy efficient and, therefore, maintained or abandoned? Explain in detail.
QUESTION 1:
The Chief Medical Officer has advised the government that consumption of widget-corn improves the survival rate of COVID-19 by 20%. Suppose the supply and
QD = 100 – 5P (1)
QS = 5P. (2)
P is the price in dollar and Q is the quantity in kilograms.
a. Determine the market
b. Calculate the
c. Having confirmed the positive impact of widget-corn consumption on COVID-19 patients, the government has ordered widget-corn sellers to charge $5 per kilogram.
(i). What type of price regulation policy? Briefly explain.
(ii). Calculate the impact of the policy on the quantity of widget-corn supplied and demanded.
(iii) Explain the impact of the policy consumer surplus, producer surplus, and total economic surplus.
(iv) Is the outcome of the government’s policy efficient and, therefore, maintained or abandoned? Explain in detail.
d. Using equations (1) and (2), sketch the demand and supply diagram and indicate your results from parts (a) – (c). Correctly label the
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