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

Draw a graph to analyze the market for agricultural products
(food). Label your price and quantity axes properly. In your graph,
draw a supply curve for agricultural products (food) that obeys the
law of supply. Label (S). In the same graph, draw a demand curve
for food that obeys the law of demand. Label (D). Identify the
market equilibrium point in your graph and label (E). Also, label
the equilibrium price (PE) and the Equilibrium quantity (QE):
1. Using supply/demand...

) 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...

Given a scenario, draw a supply/demand graph, beginning
with a market in equilibrium, and show the effect of the
implementation of a price floor on equilibrium price and
quantity.

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...

Suppose now that market demand function is given by
x(p)=(190-p)/3. Market supply function is given by x(p)=(p-47)/5,
and we are still in the perfectly competitive framework.
Compute the undistorted equilibrium price and denote it by p ,
and assume the government sets a price floor pf such
that pf=1.1p .
What is the total deadweight loss associated with the
introduction of this price floor?

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