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Suppose the U.S. government passes a law that mandates that gasoline will now cost $10.00 a gallon.
Consider the following questions: a. What does the supply and demand model predict will happen in the market? Show graphically. b. What will happen to consumer and producer surplus? Show graphically. c. Assuming the current market for gasoline is competitive, will this create a market failure or a market distortion? Be sure to define each term. d. What type of equity concern might motivate this type of policy? Be sure to provide a brief explanation and definition of the term you use.
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