Question

In Allentown, PA, in the summer of 2014, the average pricve of a gallon of gasoline was $3.68 - a 22 cent increase from the year before. Many customers were upset by th increase. One consumer was qouted in a local newspaper as saying, "It's Crazy. The government should step in." Suppose the governent has stepped in and imposed a price celing equal to the old price of $3.46 per gallon.

A. Draw a graph showing the effect of the price ceiling on the market for gasoline. Be sure that your graph show:

i. THe price and quantity of gasoline before and after the price celing is imposed

ii. The areas representing consumer surplus and producer surplus beofre and after the price celing is imposed

iii. The area of deadweight loss

B. Will the consumer who was complaining about the increase in the price of gasoline definitely be made better off by the price ceiling? Breify Explain.

Answer 1