How does the maximum price affect the quantity of gasoline

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Reference no: EM131130244

Gasoline Price Controls. The equilibrium price of gasoline is $3, and the equilibrium quantity is 100 million gallons per day. Suppose the government sets a maximum price of $2.90. For producers, each $0.01 increase in price increases the quantity supplied by 3 million gallons.

a. Draw a graph to show the effects of the maximum price on the gasoline market. Label the initial equilibrium point as a and the point that shows the quantity supplied under the maximum price as b.

b. How does the maximum price affect the quantity of gasoline sold?

Reference no: EM131130244

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