Initial demand for bottled water in a country is : QD0=300-200p. The supply of bottled water id : Qs=-100+600p. Q is in gallons per day, and p is dollars per gallon.
A hurricane hits and demand for bottled water increases to QD'=500-200p.
Which policy is in the best interest of consumers as a group
1. Setting a price ceiling at the old equilibrium price or
2. Allowing the price to rise to a new equilibrium?
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Let us first calculate initial equilibrium price and quantity. Put QD0=Qs
Qs=-100+600*0.5=200 gallons per day
QD0=300-200*0.5=200 gallons per day
Initial equilibrium price is $0.5 per gallon and equilibrium quantity is 200 gallons per day.
In the new situation, let us calculate new ...
The solution describes the steps to calculate equilibrium parameters in old and changed scenario.