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Question 4 Consider the diagram below that shows the market for local ferries that transports vehicles and people across rivers. The government believe that this

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Question 4 Consider the diagram below that shows the market for local ferries that transports vehicles and people across rivers. The government believe that this service is important to the citizens of the economy and enforce a maximum price on the good. The maximum price applied is shown as price Pm. Use your knowledge of producer surplus, consumer surplus and deadweight loss to answer the following questions. (For these questions you need to indicate the relevant areas using points noted on the diagram below or by providing your own illustration with relevant areas clearly highlighted). Identify Domestic Consumer Surplus and Producer Surplus at the original equilibrium, Pe. Identify Domestic Consumer Surplus and Producer surplus at Price Pm i.e. the maximum price. Does any deadweight loss occur from the application of the minimum price? Do you believe that imposing a maximum price was benecial overall? CLOUD) {10 marks)

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