Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 7

Use the accompanying graph to answer these questions.
a.Suppose demand is D and supply is S 0. 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 S 0. If a price floor 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 S 0 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 S 0 respectively.
e.Suppose demand is D and supply is S 0. Would a price ceiling of $2 benefit any consumers? Explain.