Consider a market where supply and demand are given by QXS = -12 + PX and QXd =
ID: 1155751 • Letter: C
Question
Consider a market where supply and demand are given by QXS = -12 + PX and QXd = 93 - 2PX. Suppose the government imposes a price floor of $44, and agrees to purchase and discard any and all units consumers do not buy at the floor price of $44 per unit. Instructions: Enter your responses rounded to the nearest penny (two decimal places). a. Determine the cost to the government of buying firms’ unsold units. $ b. Compute the lost social welfare (deadweight loss) that stems from the $44 price floor. I get part a, but for part b I am getting $81, but connect is telling me it is wrong
Explanation / Answer
a)
QXS = -12 + PX and QXd = 93 - 2PX.
Equilibrium
-12 +Px = 93 - 2Px
105 = 3P
P = 35
Q = 93 - 2*35
= 23
Floor pricing $ 44
Supply = -12 +P
= -12 + 44
= 32
Unsold = 32 - 5
= 27
b)
DWL =
= .5 ( 44-35) (18)
= .5(9*18)
=81
Second part =
= .5 (35-17)(18)
= 162
Total DWL = 81+162
= 243
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