An old exam question:

Question 1: The graph below shows market for computers in Iowa

a. Using the graph shown, analyze the effect a $300 price ceiling would have on the market for
computer. Would this be a binding price ceiling? How many computers would be sold?
b. Using the graph shown, analyze the effect a $700 price floor would have on this market for
computer. Would this be a binding price floor? How many computers would be sold?
c. Which policy would the consumer prefer, price ceiling or price floor? Which policy would sellers
prefer?
d. The production of computers creates pollution and the government wants only 3000 computers to
be produced. Government wants to achieve that target by imposing tax on computers. How much
tax the government should impose on each computer?
e. As a government employee which of these three policies would you prefer? Defend your answer.