government intervention price restrictions 1

For this workbook assignment, you need to create two additional problems where the government has placed price restrictions on what would otherwise be competitive markets. You must include a price ceiling and a price floor.

1. Come up with a sentence or two explaining what is happening and why the government is getting involved. Try to be original here, even though there are only so many different times we see price floors and ceilings.

2. Graph your market in the current equilibrium. Be sure you clearly label all the necessary prices and quantities on the axis. You may not use the same numbers used in the workbook, the videos, or the textbook examples.

3. Solve for original CS & PS and total market surplus.

4. Show on your graph (with a RED pencil/pen) what happens to the original CS and PS with the new price restriction (you don’t need to use the letters in your example, since you can show it graphically).

5. Answer the same questions mathematically that are asked in the workbook: What are the total dollar amounts that now correspond to the New Consumer Surplus, New Producer Surplus, area that was transferred, Dead Weight Loss, and Remaining Surplus?


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