In Example 9.1 (page 322), we calculated the gains and losses from price controls on natural gas and found that there was a deadweight loss of $5.68 billion. This calculation was based on a price of oil of $50 per barrel.
a. If the price of oil were $60 per barrel, what would be the free-market price of gas? How large a deadweight loss would result if the maximum allowable price of natural gas were $3.00 per thousand cubic feet?
b. What price of oil would yield a free-market price of natural gas of $3?