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non-pecuniary price

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.

a) what are the equilibrium price P* and equilibrium Q*?

B) Suppose the governement imposes a price ceiling P(ceiling) of $2 per million BTUs. Determine the total shortage associated with the price ceiling.

c) Calculate the full economic price. How much is the non-pecuniary price?

Solution Summary

The non-pecuniary price is uncovered.

$2.19