Consider a market where supply and demand are given by QXS= -12 + PX

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 any and all units consumers do not buy at the floor price of $44 per unit.a. Determine the cost to the government of buying firms’ unsold units.$b. Compute the lost social welfare (deadweight loss) that stems from the $44 price floor.$

ANSWER:

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