Answers_select_quest - Question 3(23 points Consider the perfectly competitive market for jelly beans a(10 points In a diagram below show the

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Unformatted text preview: Question 3 (23 points) Consider the perfectly competitive market for jelly beans. a. (10 points) In a diagram below, show the consumer and producer surplus for this market. b. (10 points) Suppose the government decides to tax the producers of jelly beans. In a new diagram below, show consumer surplus, producer surplus, government revenue, and deadweight loss. c. (3 points) Label, in either your graph from a or b, the efficient quantity (label this Q* and write below which graph you have labeled it on.) Pam/XV aka Question 6 (8 points) Consider the perfectly competitive market for housing. If the government decides to reduce the price of housing, should they use a binding price floor or a binding price ceiling? Show the effects of this policy on a well labeled diagram below. Be sure to include prices, quantities, and any shortage or surplus. *9 Question 5 (28 points) Consider the perfectly competitive market for hair gel. The price elasticity of demand for hair gel is 2.23 and the price elasticity of supply for hair gel is 023. (Be sure to include this information in your graphs.) a. (4 points) Suppose the government thinks that the price of hair gel is too low. They want to raise the price in the market. Should they impose a binding price floor or a binding price ceiling in the market? lmell W3 Pure, flow b. (10 points) In a clearly labeled diagram below, show the effects of the price control in part a. Be sure to label any shortage or surplus on the graph, as well as all relevant quantities. f c. (14 points) Suppose instead that the government wanted to lower the price of hair gel. Show the effects of this price control in a clearly labeled diagram. Show Consumer Surplus, Producer Surplus, and Deadweight loss under the price control, assuming that the smaller of QD and Q8 is produced, and those consumers with the highest willingness to pay are those who consumer the good. Question 1 (15 points) Consider the perfectly competitive market for bamboo. a. (5 points) Sketch a demand/ supply diagram for the market for bamboo. Label the equilibrium price and quantity as P*, Q* on your diagram. b. (5 points) You study survey data and observe that if the price of bamboo is equal to $10 then 20 cacti plants are demanded, while if price of bamboo is $3 then 50 cacti are demanded. Calculate the Cross price Elasticity of Demand of cacti for bamboo. (You do not need to simplify the math, i.e. you can leave it a fractions) VG‘E‘ @425 39:? K63 T; Q“ NEE) Q} «— . / ,/ 2— Ms 2 9/ .— What is the relationship between bamboo and cacti? w— ”. m ‘ / U7 9 c. (5 points) Suppose that the price of cacti increases and the price of water decreases. Draw and label the effects of this shift on your diagram from above (for the market for hashbrowns). Label the new equilibrium price and quantity as P2 and Q2. In a sentence or two, explain why you changed your diagram in this manner. Explicitly state what happened to equilibrium price and quantity. (You may draw a new diagram on the back if you like). 1: Wu» (mm) .5 :> s T P '§\ 1 Q l (l Z Question 3 (15 points) Consider the perfectly competitive market for watermelon in a small country. a. (7 points) Assume that the world price is higher than the domestic price. Graphically illustrate the market for watermelon when there is free trade. Label quantity of watermelon consumed domestically as QD. Label free trade price as PF. Label quantity of exports / imports as QE or QI. (you determine whether the good is exported or imported) Label the quantity of watermelon produced domestically as QS. /. s. b. (2 points) Label your diagram above and below give thang consumer surplus, a. producer surplus, government revenue, and total surplus een NO trade and Free (1" Sc: c. (2 points) Who in the Coldfeet benefits from the trade (as compared to NO trade)? mexw(£a d. (2 points) Who in the Coldfeet is hurt by the trade (as compared to NO trade)? COWéUW6(§ e. (2 points) Which is more efficient (free trade or no trade)? Why? _,/me/ ...
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This note was uploaded on 06/08/2008 for the course ECON 304K taught by Professor Ledyard during the Spring '08 term at University of Texas at Austin.

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Answers_select_quest - Question 3(23 points Consider the perfectly competitive market for jelly beans a(10 points In a diagram below show the

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