(a) Consider two substitute goods, diesel and compressed natural gas. You are given the demand and supply function of diesel as follows Q 5.6000000000000005PC -3PD and Q = 16 + 6PD + 0.2Pc ; where Pp and Pc are the prices of diesel(D) and compressed natural gas(C), respectively. If the price of CNG is $8, what is the market price of diesel? Please give your answer in 2 decimal places. (b) Now, suppose government decides to regulate the price of diesel and they fix the price at $6.5, ceteris paribus, will there be a surplus or shortage? Calculate the amount of surplus/shortage. Please give your answer in 2 decimal places. (c) Suppose that the market for diesel is not regulated anymore. If the price of CNG has increased from $8 to $10, what will be the new market price of diesel? Please give your answer in 2 decimal places.
(a) Consider two substitute goods, diesel and compressed natural gas. You are given the demand and supply function of diesel as follows Q 5.6000000000000005PC -3PD and Q = 16 + 6PD + 0.2Pc ; where Pp and Pc are the prices of diesel(D) and compressed natural gas(C), respectively. If the price of CNG is $8, what is the market price of diesel? Please give your answer in 2 decimal places. (b) Now, suppose government decides to regulate the price of diesel and they fix the price at $6.5, ceteris paribus, will there be a surplus or shortage? Calculate the amount of surplus/shortage. Please give your answer in 2 decimal places. (c) Suppose that the market for diesel is not regulated anymore. If the price of CNG has increased from $8 to $10, what will be the new market price of diesel? Please give your answer in 2 decimal places.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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