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3. The (inverse) supply and demand curves for a cornpany are as follows: Supply: Ps-10+Qs Demand: Pd-70-2Qd where Q-millions of bushels and P-price per bushel in є. (a) Calculate the equilibrium price and quantity that would prevail in the free market and illustrate your (b) Calculate the consumer and producer surplus. (The area of a triangle is -base* perpendicular height) (c) Suppose the European parliament is considering introducing price support where they guarantee a price answer using a diagram Show this information on the diagram. of 40 per bushel, ie they will buy up any excess supply at this guaranteed price. How much will the government be forced to purchase? d) Calculate how much consumers, producers and the European parliament gain/loose from this price support. Show this on a the graph. (e) As an Economist, would you be in favour of this price support. Explain why/why not.

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Answer #1

Equilibrium occurs at the point where demand equals supply. The below image shows the answer to part (a) - (d) of the given question.

) At ieee manhet equilbwium D-e equilouium Tuan-tity is 20 n:(iof bushe! Price suleblus 40 Phoductw Surplus Demand b) consumers Sohrlus(area aeoovettue 仁nice and million 40 O mition and market suttu!す40-10 tas milian bus het う@g= 30 milion, of besiel.

At the Supportやmce of e 40 Petaloushal, 햇 (30-15)= I5mituoma or bushels The ovt. will have to punchase this 1s milliGN s millian 10 40 I o D eman uantity 5 20 30 .. (million 1st om x (0-40 2 5 miltion (400 225) miim1 mit ion haim to (1-209)ie

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