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1.) For this exercise you will need to first build a graph to these specifications: Draw a downward sloping demand curve with vertical intercept (0,150) and horizontal intercept (25,0). Draw a supply curve with vertical intercept (0,50) and with slope=4 i.e. the market equilibrium occurs at (10, 90). a. Compute consumer, producer, and total surplus at the market equilibrium.
b. Label consumer surplus and producer surplus if the government imposes a price ceiling of $70, then compute deadweight loss.
c. Compute deadweight loss when the government imposes a price ceiling of $120. 2.) A drought in California destroys many grapes. As a result of the drought, what happens to the consumer surplus in the market for grapes and to the consumer surplus in the market for red wine? Draw the necessary graphs to represent this scenario and then write a sentence or two with your answer.
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