Consider a market where supply and demand are given by QXS = -10 + PX and QXd = 56 – 2PX. Suppose the government imposes a price floor of $25, and agrees to purchase any and all units consumers do not buy at the floor price of $25 per unit.
a. Determine the cost to the government of buying firms’ unsold units.
b. Compute the lost social welfare (deadweight loss) that stems from the $25 price floor.