Suppose in a market with $Q ^ { d } = 100 - 5 P \text { and } Q ^ { s } = 5 P$ , the government imposes a price floor of $15. If the government is required to purchase any excess supply at the price floor, how much will the government have to pay to purchase the excess in this market?
A)Nothing; there is no surplus
B)$1,000
C)$1,500
D)$750

Question

Quizplus · Accepted Answer

At the price floor of $15, the quantity supplied is 5P = 5(15) = 75 and the quantity demanded is Qd = 100 - 5P = 100 - 5(15) = 25. Therefore, there is excess supply of 75-25 =50. The government is required to purchase this excess at the price floor of $15 per unit. So, the government will have to pay 50*$15 = $750 to purchase the excess supply. Hence, the answer is D.

Suppose in a Market With Qd=100−5P and Qs=5PQ ^ { d } = 100 - 5 P \text { and } Q ^ { s } = 5 PQd=100−5P and Qs=5P

Suppose in a Market With $Q ^ { d } = 100 - 5 P \text { and } Q ^ { s } = 5 P$