Consider the daily market for ice-cream sandwiches in the neighborhoods surrounding Crony Capitalism Junior University in the town of Old Stick...
Supply: Q = 500(P - 2)
Demand: Q = 11000 - 1000 P
Let us say that Production Distribution Coordination--PDC--imposes a price ceiling of $4 on ice-cream sandwiches, on the grounds that nobody should ever have to pay more than $4 for an ice-cream sandwich. What is the equilibrium price? What is the equilibrium quantity? What is the equilibrium producer surplus? Consumer surplus? Deadweight loss relative to the free- market equilibrium?
Let us say that PDC imposes a price floor of $10 on ice-cream sandwiches—on the grounds that underpaid sandwich makers deserve more money. What is the equilibrium price? What is the equilibrium quantity? What is the equilibrium producer surplus? Consumer surplus? Deadweight loss relative to the free-market equilibrium?
Suppose that you have been chosen to give a three-minute—300 word—presentation to PDC arguing to them that the price floor of $10/ice-cream sandwich they imposed in (2) is doing more harm than good. What do you say?
When, broadly, is it a good thing for a government to impose per-unit taxes on production? For it to offer per-unit subsidies? For it to impose quotas? Price ceilings? Price floors?