Why the government wants to keep the price at higher level

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A. If we examine the market for rice in Pakistan during theyear 2007 and 2009, the demand of rice was higher in the year 2007 but it fell downduring the year 2009, due to the drop in the export demand of rice. But the Government wants to keep the price of rice at higher level. The given equations show the quantity demanded and quantity supplied of rice during the year 2007.

Year 2007: Demand: Qd = 1,600 - 125P
Year 2007 Supply: Qs = 440 + 165P

a. Calculate the market clearing price level andquantity in the year 2007, in that year there were no effective limitations on the production of rice.

b. Why the government wants to keep the price athigher level i.e. to $5.50 when there is decline in export demand. Will it effect on the
quantity demanded or quantity supplied equation and curve andhow much?

c. Now with the help of new quantity equationcalculate what should be the quantity of rice which the government must buy?

B. Suppose a profit-maximizing monopolist is producing 800units of output and is charging a price of $70 per unit. If the marginal cost of last unit produced is 50 what will be theelasticity of demand for the product?

Reference no: EM13243491

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