Question

1. Consider the individual supply and demand schedules below: a. In the below chart, sum the market supply and demand for cookies:

Price	Cerise	Amonette	Rose	Market Demand	Tollhouse	Girl Scouts	Market Supply
$0	8	5	4		0	0
$1	6	4	3		2	1
$2	4	3	2		4	5
$3	2	2	1		7	6
$4	1	1	0		8	10

b. Use the above Market Demand and Supply Schedule to draw the supply and demand curves. Indicate the market equilibrium price and quantity. c. Draw the effect of an increase in the price of milk, a compliment to cookies, on the cookie market. Describe if and how this changes equilibrium quantity and price. d. What effect does the change in the price of milk have on Consumer Surplus? (20 points)

Answer 1

a)

Price	Cerise	Amonette	Rose	Market Demand	Tollhouse	Girl Scouts	Market Supply
$0	8	5	4	17	0	0	0
$1	6	4	3	13	2	1	3
$2	4	3	2	9	4	5	9
$3	2	2	1	5	7	6	13
$4	1	1	0	2	8	10	18

b) Equilibrium occurs when demand = supply. Price at this point is $2 while quantity traded is 9 units.

c) If price of milk rises where cookie and milk are complement to each other, consumer will consume less of milk. As milk and cookies are consumed together, decrease in demand of milk reduce demand of cookie and shift its demand curve to its left.

d) Consumer surplus as result of backward shift of demand curve decline because demand at every price level fell.