Further Practice for Chapter 9

Further Practice for Chapter 9 -...

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CHAPTER: ANALYSIS OF THE COMPETITVE MARKETS Practice Problems with solutions (Question 10 and 11 from the course pack, Chapter  9) In Example 9.1, we calculated the gains and losses from price controls on natural gas  and found that there was a deadweight loss of $1.4 billion.   This calculation was  based on a price of oil of $8 per barrel.  If the price of oil were $12 per barrel, what  would the free market price of gas be?  How large a deadweight loss would result if  the maximum allowable price of natural gas were $1.00 per thousand cubic feet? From Example 9.1, we know that the supply and demand curves for natural  gas in the 1970s can be approximated as follows: Q S   = 14 + 2 P G  + 0.25 P O   and Q D   = -5 P G   + 3.75 P O , where  P G  is the price of gas and  P O  is the price of oil. With the price of oil at $12 per barrel, these curves become,
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Further Practice for Chapter 9 -...

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