In Allentown, Pennsylvania, in the summer of 2014, the average price of a gallon of gasoline was

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In Allentown, Pennsylvania, in the summer of 2014, the average price of a gallon of gasoline was $3.68-a 22-cent increase from the year before. Many consumers were upset by the increase. One consumer was quoted in a local newspaper as saying, "It's crazy. The government should step in." Suppose the government had stepped in and imposed a price ceiling 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 shows:

i. The price and quantity of gasoline before and after the price ceiling is imposed

ii. The areas representing consumer surplus and producer surplus before and after the price ceiling 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? Briefly explain.

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Economics

ISBN: 978-0134106243

6th edition

Authors: R. Glenn Hubbard

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