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54) Suppose the government introduces a production quota system whereby it grants 24 production licenses to producers. Each license allows a producer to produce one unit of the good. This policy will: A) lead to excess supply in the market. B) lead to excess demand in the market. C) result in a price of $4. D) result in a price of $5. E) result in a price of $7

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Nelly Stracke
Nelly StrackeLv2
24 Mar 2018
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Related textbook solutions

Principles of Economics
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Related questions

54) Suppose the government imposes a maximum price (price ceiling) equal to $15. A) This will lead to excess supply in the market equal to 25 units. B) This will lead to excess supply in the market equal to 10 units. C) This will have no affect on the market. D) This will lead to excess demand in the market equal to 10 units. E) This will lead to excess demand in the market equal to 25 units.

Two goods are considered substitutes only if :

A. Decrease in demand for one good lead to a decrease in the supply of the other

B. Increase in the demand for one good lead to a decrease in the supply of the other

C. Decrease in the price of one good lead to an increase in the demand for another

E. Decrease in the supply of one good cause producers to switch to production of the other

The market demand function for corn is Qd = 20 - 2P

The market supply function is Qs = 5P - 1

both measured in billions of bushels per year. The initial equilibrium price is $3.00, and the initial equilibrium quantity is 14 billion bushels. Consumer surplus is $49.00, producer surplus is $19.60, and aggregate surplus is $68.60. Suppose the government wants to raise the price of corn to $3.50. What are the welfare effects of a price floor, price support, production quota, and voluntary production reduction program?

Instructions: Round quantities to 1 decimal place and prices to 2 decimal places. State the cost to government in absolute value. Fill in the blank for each of the Program below.

Program 1: A price floor

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion


Program 2: A price support

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion


Program 3: A production quota

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion


Program 4: A voluntary production reduction program

Amount ($)
Consumer surplus _____ billion
Producer surplus _____ billion
Cost to the government _____ billion
Aggregate surplus _____ billion
Deadweight loss _____ billion

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