Keep the Highest: /1 Attempts: 10. Special-interest groups, lobbying, and rent-s
ID: 1140229 • Letter: K
Question
Keep the Highest: /1 Attempts: 10. Special-interest groups, lobbying, and rent-seeking behavior The following graph input tool shows the market for paint. The blue curve represents the demand curve, and the orange curve represents the supply curve Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly Graph Input Tool Market for Paint 10 9 Supp Price 4 Dollars per gallon) ntity Supplied Millions of galions) uantit 12 manded (Millions of gallons,) Shortage (Millions of gallons) 6 Surplus (Millions of gallons) emand 0 3 6 9 12 15 18 21 24 27 30 The market price of paint without government intervention is S per gallon Consider legislation that doesn't allow the price of paint to be below $8 per gallon and stipulates that the government buy any surplus paint produced at that price. In order to raise the price to $8 per gallon, the government would need to buy million gallons of paint, which would costExplanation / Answer
1. The market prce without govt. intervention is $5 as shown by equibriunm where demand and supply line intersect each other.
2. Govt. would have to buy 18 million gallons of paint which will cost them 8 * 24= $192 million
(Here $ 8 is a price floor and govt buys what is left after customers buy: Here at price $ 8 customers buy 6 million gallons of paint but as supplier are supplying 24 millionn gallons, govt buys 24-6=18 gallons of paint )- Just make tangent down to horizontal line at $ 6 on demand and supply curve you will get the values.
3. This legislation may pass becuase benefits are concentrated to producers and costs are spread to many consumers in the economy. However, this depends on elasticty of demand. Assumption to this is paint is elastic good.
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