Assume that the market for scones is in equilibrium.
- Graph the market for scones, assuming unit-elastic supply and
demand. Label the equilibrium price Pe and the equilibrium quantity
- Average consumer income goes from $25,000 to $30,000 as the
quantity demanded increases from 50,000 units to 60,000 units. What
is the income elasticity for scones across this range?
- Are scones a normal or inferior good? Explain using the income
- Illustrate the effect of part (b) on your graph from part (a),
labeling the new equilibrium price and quantity Pe2 and Qe2,
- What happened to the producer surplus as a result of part
- On a new graph, illustrate the effect of an effective price
floor on the market for coffee cakes. Label the price floor Pf and
the quantity exchanged Qf.
- Shade the deadweight loss from the price floor.
- The price floor is $3, the quantity consumed with the price
floor intersects the supply curve at $2, and there was a loss of
20,000 units from pre-floor equilibrium. Calculate the deadweight