ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Problem 1. Price ceiling in the market for gas. The demand and supply for gas on a regular day is
Price
3.5
2.00 2.25 2.50 2.75 3.00
3.25
140 100 60
Quantity demanded
40
Quantity supplied
60 100 140 160 200
a) Draw the demand and supply curves on a diagram. Mark the equilibrium point.
Q₂²
g
220 200 180
=
40
b) A price ceiling is imposed: It is illegal to sell gas above $2.25 per gallon. What is the quantity
demanded and quantity supplied at this price? What is the excess demand? What is the maximum price
consumers will be willing to pay for the amount of gas available in the market after the ceiling is
imposed?
220
Qs=
|Qo-Qs=
pconsumers
c) Identify the effect of the policy on the consumers and the producers. Compute the Deadweight loss.
ACS =
APS =
DWL =
d) You need to buy 20 gal of gas and you're willing to pay up to $4 per gallon. The opportunity cost of
your time is $10/hour. What is the maximum amount of time you would be willing to wait in line for gas
once the ceiling is imposed?
e) Can you think of two conditions under which a price ceiling would hurt, rather than help consumers?
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Transcribed Image Text:Problem 1. Price ceiling in the market for gas. The demand and supply for gas on a regular day is Price 3.5 2.00 2.25 2.50 2.75 3.00 3.25 140 100 60 Quantity demanded 40 Quantity supplied 60 100 140 160 200 a) Draw the demand and supply curves on a diagram. Mark the equilibrium point. Q₂² g 220 200 180 = 40 b) A price ceiling is imposed: It is illegal to sell gas above $2.25 per gallon. What is the quantity demanded and quantity supplied at this price? What is the excess demand? What is the maximum price consumers will be willing to pay for the amount of gas available in the market after the ceiling is imposed? 220 Qs= |Qo-Qs= pconsumers c) Identify the effect of the policy on the consumers and the producers. Compute the Deadweight loss. ACS = APS = DWL = d) You need to buy 20 gal of gas and you're willing to pay up to $4 per gallon. The opportunity cost of your time is $10/hour. What is the maximum amount of time you would be willing to wait in line for gas once the ceiling is imposed? e) Can you think of two conditions under which a price ceiling would hurt, rather than help consumers?
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