Question

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 Qe.
- 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 elasticity coefficient.
- Illustrate the effect of part (b) on your graph from part (a), labeling the new equilibrium price and quantity Pe2 and Qe2, respectively.
- What happened to the producer surplus as a result of part (d)?
- 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 loss.

Answer #1

) Use the following information for the market for bananas.
Supply and demand curves are linear
Supply is steeper than supply
Demand intersects the price axis at 36
Supply intersects the price axis at 6
The equilibrium price is 24 and the equilibrium quantity is
6
a) Draw a supply and demand model of the market for bananas. Be
sure to show the equilibrium quantity and price.
b) Calculate the market’s CS, PS, and TS.
c) Assume a binding price...

Consider a perfectly competitive market in the short-run with
the following demand and supply curves, where P is in dollars per
unit and Q is units per year:
Demand: P = 500 –
0.8Q
Supply: P = 1.2Q
Calculate the short-run competitive market equilibrium price
and quantity. Graph demand, supply, and indicate the equilibrium
price and quantity on the graph.
Now suppose that the government imposes a price ceiling and
sets the price at P = 180. Address each of...

Below you will find a supply and demand schedule for avocados.
Assume that the market is otherwise competitive and in equilibrium.
Then let the government institute a price floor at $7. You are to
illustrate this outcome; title your graph and draw supply and
demand , denote the efficient price and quantity, and exhibit the
price floor . Be sure to label deadweight loss , consumer surplus,
producer surplus , and any surplus or shortage that results .
Calculate the...

Create your own diagram of any one of the four market
interventions listed below.
Tax
Subsidy
Price Ceiling
Price Floor
Here's what I want your graph to show:
Original market equilibrium
The size of the tax or subsidy OR the level of the controlled
price (depending on which intervention you choose)
The final market quantity
The area of deadweight loss (lost gains from trade) that results
from this market intervention (shade it in and label it)
All other appropriate labels...

Create your own diagram of any one of the four market
interventions listed below.
Tax
Subsidy
Price Ceiling
Price Floor
Here's what I want your graph to show:
Original market equilibrium
The size of the tax or subsidy OR the level of the controlled
price (depending on which intervention you choose)
The final market quantity
The area of deadweight loss (lost gains from trade) that
results from this market intervention (shade it in and label
it)
All other appropriate labels...

4. Greater consumption of alcohol leads to more motor vehicle
accidents, and thus, imposes costs on people who do not drink and
drive.
a. Illustrate the market for alcohol, labeling the demand curve,
the social-value curve, the supply curve, the social-cost curve,
the market equilibrium level of output, and the efficient level of
output.
b. On your graph, shade the area corresponding to the deadweight
loss of the market equilibrium. (Hint: the deadweight loss occurs
because some units of alcohol...

Suppose the market for potatoes can be expressed as
follows:
Demand: QD = 400 – 16P
Supply: QS = –40 + 4P
a) Calculate the equilibrium price and equilibrium quantity.
b) Suppose the government sets a price ceiling of $14 per unit,
what quantity demanded and quantity supplied would be realized?
c) Neatly sketch a diagram to represent parts a and
b on a single graph.
- Make sure to illustrate the equilibrium price and quantity,
the price...

Consider the following scenario: a government institutes a
binding price floor on the market for milk.
Draw two graphs:
one showing the market before the price floor is instituted;
and
one showing the market after the price floor is
instituted.
In each graph label the following:
Market price and quantity
Consumer Surplus
Producer Surplus
Deadweight Loss (if relevant)
Explain who is benefits from the price floor and who
suffers.

Assume that the diagram below describes the apartment market in
Newark.
Part 1: Suppose that the government decides to impose rent control
in the amount of $600. Draw the price ceiling line.
Part 2: Use drop lines to indicate the quantity demanded
(Q-Demanded) and the quantity supplied (Q-Supplied) after the
imposition of the rent control.
Part 3: Use an area tool to illustrate the amount of consumer
surplus if only those who value apartments at a price greater than
or...

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 floor of $120, then compute
deadweight loss.
c. Compute...

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