Gasoline Price Controls. The equilibrium price of gasoline is $3, and the equilibrium quantity is 100 million gallons per day. Suppose the government sets a maximum price of $2.90. For producers, each $0.01 increase in price increases the quantity supplied by 3 million gallons.
a. Draw a graph to show the effects of the maximum price on the gasoline market. Label the initial equilibrium point as a and the point that shows the quantity supplied under the maximum price as b.
b. How does the maximum price affect the quantity of gasoline sold?