1. In a certain market, supply and demand for cell phones are given by the following equations:

Supply: Q = 50P - 1000

Demand: Q = 3500 - 25P

a. Compute consumer, producer, and total surplus in this market.

b. Assume now that there is a positive externality associated with the use of cell phones. Would the unregulated market (without government intervention) produce more or less than the efficient amount for society? What should the government do to eliminate this market failure?

c. Assume now that there are no externalities. The government imposes a $110 price floor in this market. Compute consumer surplus, producer surplus and deadweight loss in this new setting. Are cell-phone firms better or worse off with this measure? By how much?

d. Assume now that that the price ceiling is eliminated. The country imports 1,500 units of the good. What must be the price abroad for this to happen? Find the gains from trade generated by these imports.