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# Must show calculations and answer a 4 questions correctly. See attached file for instructions 1. ( 5 points ) During the current pandemic gasoline prices fell significantly in the early months. In...

Must show calculations and answer a 4 questions correctly. See attached file for instructions

1. (5 points) During the current pandemic gasoline prices fell significantly in the early months. In Emporia they have been as low as \$1.55 per gallon. Did the low price of gasoline stimulate higher quantity demanded, as predicted by the law of demand? Please explain.

2. (5 points) Current, or at least in the very recent past, we have had shortages of items like toilet paper and disinfecting wipes and hand sanitizer.

(a) Does a shortage imply that the price of the item is above or below the equilibrium price? Please give an explanation.

(b) What happened to demand or supply that led to the shortage? Please explain.

3.(5 points) Consider a market characterized by the following inverse demand and supply functions: PX = 10 âˆ’ 2QX and PX = 2 + 2QX.

(a) Calculate the equilibrium price and equilibrium quantity. Please show your calculations.

(b) Calculate the consumer surplus and show your calculations.

(c) Calculate the producer surplus and show your calculations.

It might help if after you have computer the answer for (a), you draw a graph, with the demand and the supply curves, and then label the y-intercept of the demand curve, the y-intercept of the supply curve and the equilibrium price and quantity, and then calculate the consumer and producer surplus.

4. (5 points) Rapel valley in Chile is renowned for its ability to produce high quality wine at a fraction of the cost of many other vineyards around the world. Rapel Valley produces over 20 million bottles of wine annually, of which 5 million are exported to the United States.. Each bottle entering the United States is subject to a \$0.50 per bottle excise tax, which generates about \$2.5 million in tax revenues. Strong weather patterns have caused unusually cold temperatures in the grape growing region in Chile, hurting the grape crop from which the wine is produced.

(a) How do the low temperatures affect the price of Chilean wine? Please explain.

(b) Assuming that the weather does not affect Californiaâ€™s grape (and wine) producing region, how will the cold weather in Chile impact the market for California wine? You may assume that Chilean Wine and California wine are substitutes for each other. Please give an explanation.

Answered Same Day Jul 04, 2021

## Solution

Saloni answered on Jul 05 2021
Homework 2
Answer 1- US oil prices turned negative for the first time on 20-April-2020. The US crude oil price went down from \$18 to -\$38 per ba
el as the rising stock made oil producers run out of space for storage and helpless oil producers had to pay buyers to take ba
els they were not able to store.
The law of demand refers that other factors being at a constant,price and demand of any goods and services are inversely related to each other. The increase in price of a product will lead to fall in price of it. The law of demand holds an exception to affect the oil industry. The most evident attribute is the low price elasticity of demand in the oil market whereas the supply of the oil is highly inelastic. Low price elasticity of demand in the oil market means demand is not reactive to change in price of oil.
Thus, the low price of gasoline did not stimulate high demand as predicted by law of demand . This is because the people who had been consuming it cannot suddenly increase consumption just because the price has decreased. I own a car which I drive to work, grocery store and friendâ€™s place, my demand did not increase because of the relatively fall in price and lockdown in the cu
ent pandemic . On the other hand, people with less consumption of oil are relatively inelastic to the demand.