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Consumer surplus and producer surplus

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Suppose the price of natural gas is regulated to be no higher than $3.00 per thousand cubic feet (mcf). The supply and demand curves for natural gas are:

Supply: QS = 15.90 + 0.72PG+ 0.05 PO

Demand: QD = 0.02 - 1.8PG+ 0.69

POQS and QD are measured in trillion cubic feet (Tcf), PG is price of natural gas in dollars per thousand cubic feet ($/mcf), and PO is price of oil in dollars per barrel ($/b). Assume PO=50.

a. Solve for market clearing price and quantity.

b. Given the price control, what is the change in consumer surplus and producer surplus?

c. What is the deadweight loss?

Reference no: EM131447355

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