Let's look at the market for new cars. Suppose that the inverse demand curve for new cars was given by the following equation:

P = 35, 000 0.01Q

Further, imagine that the supply for new cars was given by the following equation: P = 15, 000 + 0.04Q

a) Calculate the Consumer Surplus and Producer Surplus at the initial equilibrium point.

b) Suppose that the government feels like the purchase of new cars is lead- ing to too much pollution. They wish to reduce the number of new cars purchased by making them more expensive. To achieve this goal they impose a price floor of $33,000 on the purchase of a new vehicle. Calculate the Consumer Surplus and Producer Surplus at this new equilibrium point. Calculate the Deadweight loss.

c) Was this policy a success? Who gains and who loses from this change, and by how much? Overall, is the economy in a better position than it was before? Is this a Pareto improvement?