Image transcription text st-1-prod-fl… Question 2 (25 points): Consider the market for FFP2 mask represented in the diagram below. Initially, the equilibrium price for a

Image transcription text st-1-prod-fl…
Question 2 (25 points): Consider the market for FFP2 mask represented in the diagram below. Initially,
the equilibrium price for a FFP2 mask is $5, and the equilibrium quantity of mask is 1500. The government
now enforces a price control law that set the price of FFP2 mask at $3 which is below its free-market
equilibrium price.
Price of a
FFP2 mask
$8
Supply
A
B
$5
D
$3
E
$2
Demand
1000
1500
Quantity of FFP2 mask
Part I . Use the figure above to fill the following table:
Surplus
Free Market
After Price control
Difference
Consumer Surplus
Producer Surplus
Social (Total) Surplus
Part II. Use the answers to part a of this problem to answer the following questions:
(a) Did consumer surplus definetely rise, definitely remain constant, or definetely fall, or is the
direction of the change in consumer surplus unclear? Explain why.
(b) Did producer surplus definetely rise, definitely remain constant, or definetely fall, or is the
direction of the change in producer surplus unclear? Explain why.
(c) Did social (total) surplus definetely rise, definitely remain constant, or definetely fall, or is the
direction of the change in social surplus unclear? Explain why.
(d) Did price control create any deadweightloss (DWL)? If so, explain why and also show the areas
represent the DWL due to the price control on the figure above.
(e) Is the market outcome after the price control efficient? Explain your answer.

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