Draw a demand-and-supply diagram for the market

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Draw a demand-and-supply diagram for the market for life jackets. Identify the areas representing consumer and producer surplus when the price is set competitively. Now imagine that the government, desiring to promote maritime safety, sets a ceiling on the price at which life jackets can be sold. Specifically, it decrees that the price cannot exceed , where is below the initial market-clearing price. In a second diagram, show the quantity of life jackets bought and sold. Show the areas corresponding to consumer and producer surplus. Show the welfare cost of the price ceiling.

Reference no: EM131250652

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