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    shift in consumer and producer surplus

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    1) The government will tax a good for various reasons, resulting in a fall in equilibrium quality while the prices rise. Could someone explain how price controls and taxes have influenced your purchasing choices.

    2) Give an example of a shift in consumer and producer surplus. How did it affect the market efficiency? Please explain.

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    Solution Preview

    Please see the attached file.

    1) The government will tax a good for various reasons, resulting in a fall in equilibrium quality while the prices rise. Could someone explain how price controls and taxes have influenced your purchasing choices?

    Solution:

    Governments all over the world try to keep prices low by setting maximum legal prices. A maximum legal price (price ceiling) is the highest price at which the government allows people to buy or sell a good. Price ceiling set below the market price will have a considerable impact on the market & there will shortage of goods. Because ceiling price is lower than the market equilibrium price & at that price demand will be more than the ...

    Solution Summary

    An example of a shift in consumer and producer surplus is illustrated.

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