Use the following steps to show that when Supply=Demand, price and quantity are Pareto Efficient (a) On
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Use the following steps to show that when Supply=Demand, price and quantity are Pareto Efficient
(a) On a supply and demand diagram, identify TCS and TPS when price is set at equilibrium. Call the equilibrium point E = (QE, PE)
(b) Suppose price was set to PH > PE. Identify the resulting TCS and TPS.
(c) Who gains and loses (if any) from setting price to PH > PE?
(d) Suppose price was set to PL < PE. Identify the resulting TCS and TPS.
(e) Who gains and loses (if any) from setting price to PL < PE?
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