1)Price ceiling (25 Points): Colorado puts a cap on the costs for insulin (read here: https://www.npr.org/2019/05/24/726817332/colorado-caps-insulin-co-pays-at-100-for-insured-residents?t=1562572357673).

"A newlaw, signed by Gov. Jared Polis earlier this week, caps co-payments of the lifesaving medication at $100 a month for insured patients, regardless of the supply they require. Insurance companies will have to absorb the balance."

The demand for insulin is: Q Demand = 6,000 - 0.5P

And the quantity supplied is: Q Supply = -100 + 2P

The Price Ceiling is set at the level mentioned in the article.

a)On a single graph, show and label equilibrium prices and quantities that arise before the price ceiling and after the price ceiling. Label the area that represents DWL

b)Find the equilibrium price and quantity prior to implementing the price ceiling. How much welfare is created in the absence of the government intervention?

c)What quantity will be supplied after the price ceiling is implemented? What is society's willingness to pay at this quantity?

d)What is quantity demanded at the price ceiling? In this example, does the price ceiling create a shortage? How much?

e)Who wins from this price ceiling? Who loses? How much?

f)From class you know that the government typically imposes price ceilings to increase consumer surplus. This seems to contradict your findings from e). Explain how reality differs from this stylized example and how it leads to increasing consumer surplus (better read the article...). Based on your answer in d) how high is the burden of the price ceiling on insurance companies?

g)What is the price elasticity of supply AND demand at the pre-ceiling equilibrium? Are these elasticities what you expected? Why? (Hint: Use the equilibrium price and quantity as the midpoint. When calculating the change in quantity, you can choose any 2 quantities that make this equilibrium point the midpoint. When calculating the change in price, make sure that you choose the prices that are associated with the quantities you chose).