You may have noticed the lack of toilet paper available in retail outlets at the beginning of the Covid crisis. This was driven by a large shift in demand for household toilet paper as lots of individuals worried they could not get necessities during the Covid-19 crisis. The market for toilet paper is considered a highly competitive market that does not suffer from factors considered "failures" in the market. There are lots of buyers (everyone) and sellers (producers). According to IBIS world, there are about 150 manufacturers of toilet paper operating in the US alone. There is lots of competition in the distribution and retail end of toilet paper sales. Information about toilet paper is widely distributed so there is no imperfect or asymmetric information problems of significance. Negative externalities associated with production have already been addressed through other public policies. Toilet paper does not have the attributes of a "public good." Assume the following: - Before the Covid-19 crisis, - toilet paper demand is represented by the Demand Curve P=3000.5Q, holding other factors constant - toilet paper supply is represented by the Supply Curve P=0.5Q, holding other factors constant - After the Covid-19 crisis, assume the toilet paper demand curve shifts to P=6000.5Q a) Calculate equilibrium price, quantity, consumer surplus, producer surplus and net social welfare at the original demand (pre Covid market). b) Calculate equilibrium price, quantity, consumer surplus and producer surplus and net social welfare after the crisis hits (post Covid market). c) There are few if any laws in the US (that I have seen) limiting the price increase for toilet paper (there are laws limiting price increases on other products). In response to crises, however, it is common for governments to impose price ceilings on products (especially necessities like medical supplies, water, etc.). In response to this crisis, let's assume the government limits price increases on toilet paper to 50% vs the market price prior to the crisis. Calculate the price, quantity exchanged, consumer surplus, producer surplus, and net social welfare as a ressult of this policy (post Covid price cap). d) Calculate the DWL - differences between net social welfare in b) and c). You may have noticed the lack of toilet paper available in retail outlets at the beginning of the Covid crisis. This was driven by a large shift in demand for household toilet paper as lots of individuals worried they could not get necessities during the Covid-19 crisis. The market for toilet paper is considered a highly competitive market that does not suffer from factors considered "failures" in the market. There are lots of buyers (everyone) and sellers (producers). According to IBIS world, there are about 150 manufacturers of toilet paper operating in the US alone. There is lots of competition in the distribution and retail end of toilet paper sales. Information about toilet paper is widely distributed so there is no imperfect or asymmetric information problems of significance. Negative externalities associated with production have already been addressed through other public policies. Toilet paper does not have the attributes of a "public good." Assume the following: - Before the Covid-19 crisis, - toilet paper demand is represented by the Demand Curve P=3000.5Q, holding other factors constant - toilet paper supply is represented by the Supply Curve P=0.5Q, holding other factors constant - After the Covid-19 crisis, assume the toilet paper demand curve shifts to P=6000.5Q a) Calculate equilibrium price, quantity, consumer surplus, producer surplus and net social welfare at the original demand (pre Covid market). b) Calculate equilibrium price, quantity, consumer surplus and producer surplus and net social welfare after the crisis hits (post Covid market). c) There are few if any laws in the US (that I have seen) limiting the price increase for toilet paper (there are laws limiting price increases on other products). In response to crises, however, it is common for governments to impose price ceilings on products (especially necessities like medical supplies, water, etc.). In response to this crisis, let's assume the government limits price increases on toilet paper to 50% vs the market price prior to the crisis. Calculate the price, quantity exchanged, consumer surplus, producer surplus, and net social welfare as a ressult of this policy (post Covid price cap). d) Calculate the DWL - differences between net social welfare in b) and c)