Lets consider a market for goods on two separate islands, 1 and 2. Without their knowledge, producers have been given defective inputs for their production, and make their decisions using the wrong supply curve. The supply curve firms believe they face are: supply 1 : P = 8 + 0:25Q supply 2 : P = 8 + 0:75Q

The true supply curve has an intercept that is shifted down by 2 units. Consumer demand is as follows: demand : P = 27 - 3Q

1. Compare the inefficiency across the two islands (i.e., solve the competitive equilibrium, and calculate the surpluses and dead weight losses, support your answer with graphs). 2. In each island, who benefits more from the misinformation and who loses more? Ex- plain why is this is the case for each island and why they differ.