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“Demand for potatoes is given by p(q) = 11 − q and supply by p(q) = 1 + q. (a) [6 marks] What are equilibrium prices and quantities in this case? Calculate consumer surplus and producer surplus. (b) [6 marks] Assume that there is a unit tax of t = 2. What price do producers get? What is the price that consumers pay? How high is tax revenue? (c) [6 marks] Calculate consumer surplus, producer surplus and deadweight loss for the case in (b). Now set the tax to zero again t = 0. Assume that because of war supply shifts to p(q) = 1+4q. The government puts in place a price cap such that price is regulated to be the same as in (a). (d) [7 marks] What are the effects on producer surplus and consumer surplus of the price cap? (e) [7 marks] In situations as in (d) price caps are often combined with rationing–a certain allotment per person. What might be an economic argument for rationing? Against? EC402” has been added to your cart. View cart