Exam 3: Using Supply and Demand to Analyze Markets

The government wants to transfer welfare from buyers to sellers by collecting a $1 tax on a good from buyers and subsidizing sellers $1 for each unit of the good sold. This policy will:

Suppose that technological breakthroughs make jet packs affordable, convenient, and safe for personal transportation. The demand for automobiles would become _____ the consumer surplus from automobiles.

(Figure: Market for Good X II) Before the subsidy, consumers pay price ____ and after the subsidy, consumers pay price ____.

Suppose that last year the equilibrium price and the quantity of good X were $10 and 5 million pounds, respectively. Because of strong demand this year, the equilibrium price and the quantity of good X are $12 and 7 million pounds, respectively. Assuming that the supply curve of good X is linear, producer surplus:

The supply and demand for almonds are Q^D = 80 - 10P and Q^S = 10P, where P is price per bag and Q measures hundreds of bags per day. a. What are the equilibrium price and quantity? b. Calculate consumer and producer surplus. c. Suppose the government imposes a price floor of $7 per bag. Is there a shortage or surplus of almonds? If so, what size is it? d. Calculate consumer and producer surplus with the price floor. e. What is the size of the deadweight loss?

Suppose that the market demand curve for residential water is given by Q^D = 10 - 2.25P and the market supply curve is given by Q^S = -10 + 2.75P where the quantity is measured in millions of gallons per month and the price is in dollars per thousand gallons. Calculate the producer surplus at the equilibrium price.

Suppose that the demand curve for brown rice is given by P= 50,000 - 3Q², and supply is P = -10,000 + 3Q². The equilibrium price is ____ and the equilibrium quantity is ____.

The demand and supply of ethanol (a renewable fuel from plant materials) are given by Q^D = 8,000 - 2,000P and Q^S = 1,000P - 1,000, where P is price per gallon and Q measures gallons per minute. What does it cost the government to subsidize ethanol by $0.30 a gallon?

(Figure: Price and Quantity II) The outward shift of the supply curve will cause consumer surplus to increase from area _____ to area _____.

The supply and demand for solar panels are given by Q^S = 5P - 5,000 and Q^D = 15,000 - 5P, where P is price per solar panel and Q measures the quantity of solar panels. Suppose the government provides a $500 subsidy per solar panel. a. Calculate the price consumers pay before and after the subsidy. b. Calculate the price producers receive before and after the subsidy. c. How much does the subsidy program cost the government?

Tavist allergy pills sell for $25 a box. Stefan, Brianna, and Tobias are willing to pay $33, $27, and $19, respectively, for a box of Tavist. What is the total consumer surplus for Stefan, Brianna, and Tobias?

(Figure: Market for Peanuts I) Suppose the government enacts a price ceiling of $250 per ton. Which of the following statements are TRUE? I. Consumer surplus before the price ceiling is area A + B + C. II) Consumer surplus after the price ceiling is area D + E. III) Producer surplus before the price ceiling is area D + E + G. IV) Producer surplus after the price ceiling is area F.

All else being equal, a demand increase:

(Figure: Market for Comic Books I) The quota at S₂ causes producer surplus to:

Suppose the demand and supply curves for units of university credits are given by Q^D = 5,000 - P Q^S = -1,000 + 4P Where Q^D is the quantity of credits demanded, Q^S is the quantity supplied, and P is the price in dollars for each unit. Consumer surplus at the equilibrium price is ____.

(Figure: Market for Tickets II) Before the tax, producers receive the price ____ and after the tax, producers receive the price ____.

(Figure: Market for Ammunition I) In the free market result, the producer surplus is:

The market for organic cabbage is represented by Q^D = 1,200 - 75P and Q^S = 425P - 300, where P is the price per head of cabbage and Q measures the number of heads of cabbage per week. Suppose the price of organic fertilizer falls, making sellers willing to sell 100 more heads of cabbage per week at every price. What happens to producer and consumer surplus as a result of this change?

The market for plywood (a sheet of wood used in construction) is characterized by the following demand and supply equations: Q^D = 800 - 10P and Q^S = 50P - 1,000, where P is the price per sheet of plywood and Q measures the quantity of plywood. If the government imposes a price ceiling of $25 per sheet of plywood, producer surplus:

The supply and demand for 9-volt batteries are given by Q^D = 230 - 10P and Q^S = 30P - 10, where P is the price per four-pack and Q measures the number of four-packs. a. What are the levels of consumer and producer surplus at the equilibrium price? b. Suppose that a hurricane causes widespread blackouts, shifting the demand curve for 9-volt batteries outward, with the new demand curve equal to Q^D = 690 - 10P. If the government sets a price ceiling equal to the pre-hurricane price (the old equilibrium price), what is the level of consumer surplus? c. If the government did not impose the price ceiling, what would consumer surplus equal? Are consumers better off with the price ceiling?