This winter European countries are dealing with high prices for fuels used to heat homes and businesses. Political leaders are very concerned about what could happen to their citizens, especially if the weather is colder than usual.There is a risk of job losses if employers shut down, as well as the risk of illness and death if home temperatures get too low.They are looking at ways to help citizens pay their fuel bills, especially those with low and moderate incomes.

a) Some suggest that a binding price ceiling be imposed on fuel prices. Compared to no government interference, how would this affect the price of fuel paid by consumers and the amount of fuel they would buy? Explain your answer. b) What would be the impact of the price ceiling on fuel on consumers? What about producers? Explain why. c) Others suggest thatfuel prices should be determined by market forces and that customers be given a subsidy for fuel purchases. Subsidies would go only to those with low to middle incomes. They would receive a coupon of about 500 euros per winter month from the government for fuel purchases. Compared to no government interference, how would this affect the price of fuel paid by consumers and the amount of fuel they would buy? d) In summary European leaders have three options for dealing with the winter fuel situation: no interference with the market, imposing a binding price ceiling, and providing subsidies for fuel purchases. Which would you recommend and why? Justify your answer based on the economic outcomes of the three approaches