Problem Set 2 ̶ Supply and Demand Question 1
Download 383.12 Kb. View original pdf
|
- Navigate this page:
- Question 56
- Question 57
- Question 59
| Question 55 How will the invisible hand move corn prices in response to a. a flood that destroys a great deal of the corn crop b. arise in the price of wheat (a substitute for corn ca change in consumer tastes away from corn dogs toward hot dogs d. an increase in the number of people with access to the corn market Question 56 Hardware stores charge higher prices for snow shovels after a big snowstorm. What role do prices play in the snow shovel market Should the government step in and keep the prices low Show your reasoning with a supply and demand exhibit. Be sure to discuss deadweight loss. Question 57 The following diagram shows the market demand and market supply for sweaters. Calculate consumer surplus, producer surplus, and social surplus in this market. Question 58 There are four consumers willing to pay the following amounts for an electric car Consumer 1: $70,000 Consumer 2: $20,000 Consumer 3: $80,000 Consumer 4: $40,000 There are four firms that can produce electric cars. Each can produce one carat the following costs Firm A $30,000 Firm B $60,000 Firm C $40,000 Firm D $20,000 Each firm can produce at most one car. Suppose we wanted to maximize the difference between consumers willingness to pay for electric cars and the cost of producing those cars that is, we wanted to maximize social surplus. a. How many electric cars should we produce b. Which firms should produce those cars c. Which consumers should purchase those cars d. Find the maximum social surplus in the electric car market. Question 59 You run a small classroom market experiment with only three buyers and three sellers. The willingness to pay (reservation value) for buyer A is $7; for buyer Bit is $5; and for buyer Cit is $3. The willingness to accept (reservation value) for seller Xis for seller Y it is $4; and for seller Zit is $6. a. Sketch the supply and demand in this market. b. What is the equilibrium quantity c. What is the social surplus given this outcome d. What if in your experiment, seller X and buyer C agree to a price of $2.50, seller Y and buyer B agree to a price of $4.50, and seller Z and buyer A agree to a price of $6.50. All participants have managed to find a trade that benefits them individual, and yet this is not an efficient outcome. In terms of social surplus, why not |