Answer to Question #233926 in Microeconomics for mwils

Question

Consider the perfectly competitive market for Diesel. The aggregate demand for gasoline is. The aggregate demand for gasoline is

While the aggregate supply is

a)Work out the equilibrium price and quantity.                                                         

b)At the equilibrium level established in part a), calculate the consumer surplus, producer surplus and total surplus.It is established that most fuel stations are going out of business To address this problem, the government decides to set a minimum price of  . What will be the new equilibrium price and quantity? What will be the new consumer surplus and producer surplus?Who gains and who loses from this regulation? Explain how the total surplus affected?

Answer 1

Equilibrium price is calculated on the equation:

Aggregate Demand = Aggregate supply

Provided both equations, the value of P is the equilibrium price. From the quantity demanded equation. We insert and replace P with its value to find the value of equilibrium quantity.

CS = ½ (base) (height).