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Calculating effect of a price Floor - example HL Only!!!!!!

Assume a linear demand function of the form:

Qd = 95 - 5P

and a linear supply curve of the form:

Qs = -40 + 10P

Using these demand and supply functions, answer the following questions. Once you have had a go at the questions, follow the link below to compare your answers.

  1. Calculate the quantities demanded and supplied for prices from $1 - $15.
  2. Plot these figures to give the demand and supply curves for the product.
  3. Using simultaneous equations, calculate the equilibrium price and output.
  4. The government then imposes a price floor of $4 on the market. Show this on the diagram.
  5. Calculate the excess supply as a result of this price floor.
  6. Calculate the level of consumer expenditure:
    1. before the price floor was imposed
    2. after the price floor was imposed
  7. Calculate how much the government would have to spend to purchase the excess supply as a result of the price floor.