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1. In a small country, the demand for cooking oil is qd = 200 10p: The supply of cooking oil is qs = 15p: The

1. In a small country, the demand for cooking oil is qd = 200 10p: The supply of cooking oil is qs = 15p: The government sets a price ceiling, p; on the price of cooking oil. (a) What is the range on p where the government action will change the outcome (price and quantity) in the market? (b) If the price ceiling is set at p = $6, what is the quantity of cooking oil that will be exchanged in the market? (c) What is the largest amount of Total Surplus that will be generated in this market? (Assume that there is no illegal market where units are exchanged above the price ceiling). What is the smallest amount of Total Surplus that will be generated in this market?

2. Benny consumes two goods: Chocolate (C) and Drinks (D). Benny has income M = $200: The price of Chocolate is PC = $10: Quantities of the goods must be positive but do not have to be whole integer values (eg. a bundle with C = 10:26 units of Chocolate is possible). (a) If the price of a Drink is PD = $25 use a gure with C on the horizontal axis and D on the vertical axis to show Bennys budget line. Clearly label the intercepts and the slope of this budget line. (b) The price of a Drink is PD = $25 if D 4 but any additional Drinks can be purchased at price P 0D = $16 Use a gure with C on the horizontal axis and D on the vertical axis to show Bennys budget line. Clearly label all intercepts, all slopes and any points where the slope of this budget line changes.

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