1. The graph below shows the market for shirts. The government is considering intervening in this market. (15 points) $40- Demand $30- -Supply- $20- $10- 0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 Quantity a. Identify the market equilibrium price and quantity (label them P₁ and Q₁). b. Suppose the government imposes a price ceiling at $16, is there a shortage, a surplus, or neither. Is the price ceiling binding? Draw and label this imposed price ceiling as P₂ on the graph above. C. If instead the government imposes a price floor at $22, is there a shortage, a surplus, or neither? Is the price floor binding? Draw and label this imposed price ceiling as P3 on the graph above. Price 1. If the price elasticity of supply of a good is 0.60 and the price increases by 3 percent, then the quantity supplied of that good will rise by (5 POINTS) a) 0.60 percent b) 0.20 percent c) 1.8 percent d) 2.2 percent e) None of the above 2. The market equilibrium price for sugar is 6 cents a pound, and the market equilibrium quantity is 30 million pounds. Which of the following policies would create an excess supply of sugar? (5 POINTS) a) A price ceiling of 10 cents a pound b) A price floor of 10 cents a pound c) A price ceiling of 3 cents a pound d) A price floor of 3 cents a pound e) None of the above 3. Consider the following demand curve. If the price falls from P₂ to P₁, which area constitutes the change in consumer surplus. (5 POINTS) Price A P₂ D Q3 Quantity B P₁ 0 a) BGF b) AFP₁ c) P₁P₂BF d) ABP₂ e) None of the above G Q₂ Q₁