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Question

Consider a market where supply and demand are given by QXS = -18 + PX and

QXd = 90 - 2PX. Suppose the government imposes a price floor of $41, and agrees to purchase and discard any and all units consumers do not buy at the floor price of $41 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 $41 price floor.


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