1. Say a local government will build a new office center and offers to purchase gasoline to compensate employees who must now commute further distances. The government plans to buy the gas from a state-owned refinery for a fixed price of $3 per gallon. This is not the market price, which would be set by:

Qd = 240-20 Px Qs = 40 Px

1. Determine what the free market equilibrium would be for gasoline and discuss its usage in a private or social cost-benefit analysis
2. Determine the shadow price (or full economic price) of the marginal unit of gasoline in this distorted market and discuss it's usage in social cost-benefit analysis.