Programs exchanged in the market

Question

For the question below, utilize the given information. The market for gizmos is competitive, with an increasing sloping supply curve and a downward sloping demand curve. With no govt. intervention, the equilibrium price is $25 and the equilibrium quantity is 10,000 gizmos. Consider the given programs of government intervention:

Program I: The govt. obliges an excise tax of $2 per gizmo
Program II: The govt. gives a subsidy of $2 per gizmo for gizmo producers.
Program III: The govt. obliges a price floor of $30.
Program IV: The govt. obliges a price ceiling of $20.
Program V: The govt. permits no more than 8,000 gizmos to be generated.

Which of such programs would lead to a less than 10,000 units exchanged in the market? Explain briefly.

Answer 1

Program I: The excise tax will raise the price consumers pay to a level above $25, and lower the price producers obtain to a level beneath $25; therefore, the quantity exchanged in the market will fall beneath 10,000 units.

Program II: With the subsidy, the price producers obtain will rise to a level above $25; the price consumers obtain will fall beneath $25. Therefore, the equilibrium quantity exchanged will increase to a point above 10,000.

Program III: With price floor of $30, consumers will purchase less than 10,000 gizmos; therefore fewer than 10,000 will be substituted in the market.

Program IV: With price ceiling of $20, producers will provide less than 10,000 gizmos; therefore fewer than 10,000 will be substituted in the market.

Program V: By govt. fiat, less than 10,000 gizmos will be substituted.