1.) (30 points) The supply and demand for electricity is given as follows:
Demand: P = 500 – 2Q
Supply: P = 25 + 0.5Q
a.) What is the competitive market equilibrium under no policy?
b.) What is consumer surplus in this case?
c.) What is producer surplus in this case?
d.) How much wealth is created by the market in this case?
e.) Suppose the government imposes a price ceiling of $100/GWh. What is
the competitive market equilibrium under the price ceiling?
f.) What is the change in welfare to producers?
g.) What is the change in welfare to consumers?
h.) What is the change in welfare due to the price ceiling?
i.) Suppose the price ceiling was instead $160/GWh. What would be the
change in welfare in this case?
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