Use the accompanying graph to answer these questions. (LO2, LO3, LO4)
- a. Suppose demand is D and supply is S0. If a price ceiling of $6 is imposed, what are the resulting shortage and full economic price?
- b. Suppose demand is D and supply is S0. If a price support of $12 is imposed, what is the resulting surplus? What is the cost to the government of purchasing any and all unsold units?
- c. Suppose demand is D and supply is S0 so that the equilibrium price is $10. If an excise tax of $6 is imposed on this product, what happens to the equilibrium price paid by consumers? The price received by producers? The number of units sold?
- d. Calculate the level of consumer and producer surplus when demand and supply are given by D and S0 respectively.
- e. Suppose demand is D and supply is S0. Would a price ceiling of $2 benefit any consumers? Explain.