consumer and producer surplus
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Free InquiryIn the competitive market for gasoline in Newton, supply and demand are given by:
Qd = 4 – (1/3)*P
Qs = -1 + P
where Q is the number of thousands of gallons per day, and P is the price per gallon in dollars
a) Calculate the consumer surplus and producer surplus at the equilibrium.
b) Now, suppose that the government subsidizes gasoline by paying retailers $1.00 for each gallon sold.
What will be the new equilibrium price paid by consumers and quantity bought?
Calculate the deadweight loss, if any.
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