Exercise 1: Consider the perfectly competitive market for gasoline. The aggregate demand for gasoline is Q = 100 – p, while the aggregate supply is Q = 3p 1. Calculate the equilibrium price and quantity. At this equilibrium, compute the consumer surplus, producer surplus and total surplus.

2. Suppose now that the government is concerned because many gas stations are going out of business, so it decides to set a minimum price of p = 30 to help them. What will be the new equilibrium price and quantity with this intervention? Compute the consumer surplus and producer surplus; who gains and loses from this regulation? How is the total surplus affected? Briefly explain the intuition.

3. Suppose now that instead of regulating prices, the government decides it is better to help gas stations by setting quantity regulations. In particular, the government sets a quota of q = 70 (this means that aggregate quantity supplied can’t exceed 70 units). What will be the new equilib