In a perfectly competitive market, the market demand curve is given by Qd = 200 − 5Pd, and the market supply curve is given by Qd = 35Ps.
a) Find the equilibrium market price and quantity demanded and supplied in the absence of price controls.
b) Suppose a price ceiling of $2 per unit is imposed. What is the quantity supplied with a price ceiling of this magnitude? What is the size of the shortage created by the price ceiling?
c) Find the consumer surplus and producer surplus in the absence of a price ceiling. What is the net economic benefit in the absence of the price ceiling?
d) Find the consumer surplus and producer surplus under the price ceiling. Assume that rationing of the scarce good is as efficient as possible. What is the net economic benefit in this case? Does the price ceiling result in a deadweight loss? If so, how much is it?
e) Find the consumer surplus and producer surplus under the price ceiling, assuming that the rationing of the scarce good is as inefficient as possible. What is the net economic benefit in this case? Does the price ceiling result in a deadweight loss? If so, how much is it?