Reference no: EM132337079

Consider a market where supply and demand are given by

Q s/x = -16 + Px (Supply curve)

Q d/x = 92 - 2Px (Demand curve)

Suppose that the government imposes a price floor of $40 and agrees to purchase any and all units consumers do not buy at the floor price of $40 per unit.

(a) Determine the excess supply at the floor price.

(b) Determine the cost to the government of buying all unsold units of the good.

Here is my work... am I missing a step? Any help pointing me in the right direction so I can understand it would be greatly appreciated. Thank you.

Q d/x = 92 - 2(40) Q s/x = -16 + 40

Q d/x = 92 - 80 Q s/x = 24 units

Q d/x = 12 units

(a.) Since Q s/x is greater than Q d/x, a surplus of 12 units exist

(b.) The cost to the government of purchasing the surplus is 40 X 12 = $480