Question

Question 1

The table below shows John’s, Jack’s, and Jill’s individual demand schedules for apples. P is the price of apples in US dollars per pound ($/lb), and ?? is the quantity demanded in pounds of apples per week (lbs/week) at each given price.

John’s Demand Schedule		Jack’s Demand Schedule		Jill’s Demand Schedule		Market Demand Schedule
P	??	P	??	P	??	P	??
1.00	7	1.00	7	1.00	7
1.50	6	1.50	5	1.50	6
2.00	5	2.00	4	2.00	4
2.50	5	2.50	3	2.50	2
2.99	3	2.99	2	2.99	1

1. (a) Clearly showing all your work (horizontal summation, for example), calculate the market demand for apples per week at each given price and show your answers in the last two columns of the table above. (5pts)

2. (b) In the space below, neatly sketch the market demand curve for apples per week, making sure you have clearly labeled all its key features (10pts).

(c) On the graph you have sketched above, shade the area that represents the market consumer surplus at a price of $2.50/lb and label this area as “CS.” (5pts)

4. (d) How much is Jill willing to pay for the 7th pound of apples, and what is her marginal benefit from that 7th pound of apples? (5pts)

5. (e) How much is the market willing to pay for the 21st pound of apples, and what is the marginal social benefit from that pound of apples? (5pts).

Answer 1

Table 1

John’s Demand Schedule		Jack’s Demand Schedule		Jill’s Demand Schedule		Market Demand Schedule
P	??	P	??	P	??	P	??
1	7	1	7	1	7	1	21
1.5	6	1.5	5	1.5	6	1.5	17
2	5	2	4	2	4	2	13
2.5	5	2.5	3	2.5	2	2.5	10
2.99	3	2.99	2	2.99	1	2.99	6

Figure 1