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3.18 Suppose that initially the gasoline market is in equilib HW 6 rium, at a price of $2.50 per gallon and a quantity of 45 million gallons per month. Then a war in the Middle East disrupts imports of oil into the United States, shift- ing the supply curve for gasoline from 5, to $2. The price of gasoline begins to rise, and consumers protest. The fed- eral government responds by setting a price ceiling of $2.50 per gallon. Use the graph to answer the following Your name: questions. To be clear: Your analysis starts AFTER the disruption in supply In other words, $1 no longer exists and should not be part of your analysis. a. If there were no price ceiling, what would be the equilibrium price of gasoline, the quantity of gasoline demanded, and the quantity of gasoline supplied? Now assume that the price ceiling is imposed and that there is no black market in gasoline. What are the price of gasoline, the quantity of gasoline demanded, and the quantity of gasoline supplied? How large is the short age of gasoline? b. Assume that the price ceiling is imposed, and there is c. Now assume that there is a black market, and the price no black market in gasoline. Show on the graph the ar- of gasoline rises to the maximum that consumers are eas representing consumer surplus, producer surplus, willing to pay for the amount supplied by producers, and deadweight loss. at $2.50 per gallon. Show on the graph the areas repre- senting producer surplus, consumer surplus, and dead- Price weight loss. (dollars Hint: See Solved Problem 4.3 in the chapter to determine the new price, per gallon) S1 But don't copy their shading! Instead, follow the approach we learned in class. $5.5 Price 3.50 (dollars per gallon) 52 2.50 SA $5.50 3.50 30 40 45 Quantity 2.50 (millions of gallons per month) 30 40 45 Quantity d. Are consumers made better off with the price ceiling (millions of than without it? Briefly explain. gallons per month)