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Using a conventional supply-demand diagram

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Presume that the government decides to guarantee an above-market price for a good by buying up any surplus at that above-market price. Using a conventional supply-demand diagram, illustrate the following gains and losses from such a price support:

1. The loss of consumer surplus.

2. The gain of producer surplus in the short run

3. What is the total cost of the program to consumers?

4. The cost of running the government program (assuming on storage costs)

5. Are the cost and benefits of the support program widespread or concentrated?

Reference no: EM13685261

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