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A. Consider a competitive market for corn for which the quantities demanded and supplied (per year) at various prices are given as follows:
Price (RM) Demand
(millions)
Supply
60 22 14
80 20 16
100 18 18
120 16 20
i. What are the equilibrium price and quantity of corn?
ii. Suppose the government sets a price ceiling of RM80, will there be a shortage or surplus and how much? Explain why the market is in disequilibrium.
iii. How does price elasticity of demand affect the size of the shortage or surplus?
B. i. What is consumer surplus and producer surplus?
ii. Draw a diagram showing consumer and producer surplus when market is in equilibrium. Explain the graph.
iii. What will happen to consumer and producer surplus when there is under-production? Will there be a dead-weight loss? Explain using a separate graph.
C. Using separate graphs, show the impact of sales tax on product X in immediate and long-run market periods. Clearly indicate consumer's and producer's burden of tax on the graph. Assume that all other factors remain constant and that the market demand curve is inelastic.
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