Problem set 2 Spring 2007

Problem set 2 Spring 2007 - Name: _ Problem Set #2 (due...

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Problem Set #2 (due Tuesday, 2/20) Page 1 of 2 1. Let us return to the triple latte market at CSU-LB from Handout 1d. Triple Latte Market at CSU-LB 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 0 5 10 15 20 25 30 35 40 45 50 Quantity (cups of coffee) Price ($ per cup) supply curve demand curve a. On the supply and demand diagram shown above, indicate the equilibrium price and quantity with a dotted line ‘----’ connecting the equilibrium point to each axis. b. Indicate the consumer surplus with ‘CS’ and the producer surplus with ‘PS’ on the diagram. c. Calculate the total revenue (TR) earned by the firms in the initial equilibrium. d. Suppose that the willingness to pay for a triple latte at CSU-LB decreases by $2.00 per cup. On the diagram, show the impact of the decrease in the willingness to pay on the equilibrium price and quantity in the triple latte market. Indicate the new equilibrium with a solid line ‘ ’. e.
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Problem set 2 Spring 2007 - Name: _ Problem Set #2 (due...

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