Determine the lost social welfare

Reference no: EM13176734

Consider a market where supply and demand are given by QXS = -14 + PX and QXd = 91 - 2PX. Suppose the government imposes a price floor of $42, and agrees to purchase any and all units consumers do not buy at the floor price of $42 per unit.

a. Determine the cost to the government of buying firms' unsold units.$

b. Compute the lost social welfare (deadweight loss) that stems from the $42 price floor.

Reference no: EM13176734

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