Assume that the market for ballpoint pens is characterized by perfect competition. That supply is an increasing function of price, and that demand is a decreasing function of price.

a. Draw the market intersection under perfect competition and explain the slope of the supply curve and the demand curve.

b. Suppose that a maximum price of ballpoint pens is introduced that is lower than the equilibrium price. How does this affect supply and demand? Show this graphically. Explain various advantages and disadvantages of a maximum price.

c. Explain the terms consumer surplus, producer surplus and socio-economic surplus. Feel free to use a similar figure as from exercise (a).

d. The market demand for ballpoint pens is given by: P = 110 - 0.5X and the market supply is given by: P = 10 + 0.5X

Draw the supply curve and the demand curve in this case. Calculate the equilibrium price and quantity traded.

e. Assume a maximum price of NOK 50. Calculate quantity supplied, quantity demanded, and excess demand.

f. Now ignore the maximum price. Calculate consumer surplus, producer surplus and socio-economic surplus.