The Reinheitsgebot is a set of laws established in the 1500s that regulate the production and sale of beer in Germany. Among its provisions, the edict set maximum prices that brewers could charge at various times of the year: “From Michaelmas to Georgi, the price for one [Bavarian Liter] is not to exceed one Pfennig Munich value.” Cheap beer—this must be a great thing for consumers! Suppose that the demand for beer is given by Qb = 6,000 – 1,500P,  and the supply of beer is given by Qs = -1,000 + 2,000P.

a. Graph the supply and demand for beer carefully.

b. Calculate the equilibrium price and quantity in a free market; then calculate consumer and producer surplus.

c. How will a 1-Pfennig price ceiling affect the price paid by consumers for beer? How will it affect the quantity consumed?

d. Calculate the consumer surplus received by beer drinkers and the producer surplus received by beer producers after the 1-Pfennig price ceiling is imposed.