Suppose That the Market for Cigarettes Is Initially in Equilibrium $P = 60 - Q ^ { d }$

question 32

Multiple Choice

Suppose that the market for cigarettes is initially in equilibrium and is perfectly competitive. The demand curve can be expressed as $P = 60 - Q ^ { d }$ ; the supply curve can be expressed as $P = 0.5 Q ^ { s }$ . Quantity is expressed in millions of boxes per month. Now suppose that the federal government imposes a production quota on cigarettes of 30 million boxes per month. What is the level of excess supply in this market?

• A) There is no excess supply. There is an excess demand of Q = 30.
• B) There is no excess supply or demand.
• C) There is an excess supply of Q = 30.
• D) There is an excess supply of Q = 20.

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