Q. Social Welfare. Natural gas is in high demand as a clean-burning energy source

for home heating and air conditioning, especially in major metropolitan areas where air

quality is a prime concern. The domestic supply of natural gas is also plentiful. Govern

ment reports predict that gas recoverable with current technology from domestic sources

is sufficient to satisfy production needs for more than 50 years. Plentiful imports from

Canada are also readily available to supplement domestic production. To illustrate the

net amount of social welfare generated in this vigorously competitive market, assume that

market supply and demand conditions are

QS=-500+500P (Market Supply)

QD=3,500-500P (Market Demand)

where Q is output in million Btus (in millions), and P is price per unit. A British ther

mal unit (Btu) is an English standard unit of energy. One Btu is the amount of thermal

energy necessary to raise the temperature of one pound of pure liquid water by one de

gree Fahrenheit at the temperature at which water has its greatest density (39 degrees

Fahrenheit).

(1). Graph and calculate the equilibrium price/output solution. (10 points)

(2). Use this graph to help you algebraically determine the amount of consumer surplus.

(15 points)

(3). Determine the amount of producer surplus. (15 points)

(4). What is the amount of social welfare? (10 points).