Suppose the market supply function for natural gas is P = 10 + 2Q and the market demand function of natural gas is P = 70 - Q, where P is the price of the natural gas per cubic feet and Q is the quantity of natural gas bought and sold.
1) What are the equilibrium price and quantity of natural gas in a competitive market?
2) Compute the consumer surplus and producer surplus. Assume the government imposes a price ceiling at P = $40.
3) Find the consumer surplus and producer surplus associated with the resulting allocation.
4) Find total benefit and total cost in the allocation.