On one graph,

a)Draw the supply and demand for a market in perfect competition without any market distortions/failures.

b)Identify the market equilibrium.

c)Now, suppose the government introduces a quota that restricts the quantity exchanged on the market. Show the effect on the demand/supply and the equilibrium prices and quantity.

d)Identify the deadweight lost, the consumer surplus and the producer surplus.

e)Is it possible that the lost for the society to exceed the deadweight lost? Explain

Question 4

For the following questions, evaluate the effect of the events on the equilibrium price and quantity. Draw the supply/demand diagram of each market and EXPLAIN what happens in the market.

a)A crash of an airplane killed 120 people and the price of oil increases. What are the effects on the market of airplane tickets?

b)A virus kills 5% of all trees in North America and populations (people) in Canada increases. What are the effects on the market of chairs?

c)A cheaper production process for CPU and a new popular computer games have been released. What are the effects on the market of computers?

d)The price of gas increases and public transit in major cities expends. What are the effects on the market of cars?