COVID-19 has had a dire effect on global economies. Economic activity has shrunk dramatically, and with it the food supply value chain globally. The following are the demand and supply functions for the macro-food market in the Nigerian economy.
Q_D= 200,000 - 4,000PQD=200,000−4,000P and Q_S = 20,000 + 2,000PQS=20,000+2,000P
Equilibrium price is $30 and equilibrium quantity is 80,000 units.
a. If the government implements a price ceiling of $25 on the price of food, what is the level of constrained supply now? (2 points)
b. What is the non-pecuniary price? (2 points)
c. Calculate the level of consumer surplus after the ceiling has been introduced. (3 points)
d. Are all consumers better off after the policy? Justify intuitively or mathematically. (2points)