Question:
Suppose the market for natural gas can be described by:
Demand: Q(D)= 80 - 5P
Supply: Q(S)= 20 - 15P
Where P is the price ($) of natural gas per million BTU, Q(D) is the quantity demanded and Q(S) is the quantity supplied of million BTUs of natural gas per day.
Q1. What are the equilibrium price P* and equilibrium Q*?
Q2. Suppose the governement imposes a price ceiling P(ceiling) of $2 per million BTUs. Determine the total shortage associated with the price ceiling.
Q3. Calculate the full economic price. How much is the non-pecuniary price?