The government of Islandia, a small island nation, imports heating oil at a priceof $2 per gallon...

Question

The government of Islandia, a small island nation, imports heating oil at a priceof $2 per gallon and makes it available to citizens at a price of $1 per gallon. IfIslandians’ demand curve for heating oil is given by P = 6 =Q, where P is theprice per gallon in dollars and Q is the quantity in millions of gallons per year,how much economic surplus is lost as a result of the government’s policy?

Robert · Accepted Answer

SOLUTION:
• At a per gallon price of $1, Islandians consume 5 million gallons of oil per year 
• However, this level of consumption is attributed to the price control set of the 
government 
• The true per unit cost is actually $2 per gallon 
• If the government charges where P= MC,

The government of Islandia, a small island nation, imports heating oil at a priceof $2 per gallon and makes it available to citizens at a price of $1 per gallon. IfIslandians’ demand curve for heating...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment