Suppose that the linear market supply curve starts on the price axis at $8 per box, and that the...

Question

Suppose that the linear market supply curve starts on the price axis at $8 per box, and that the linear market demand curve hits the price at $7 per box. Is there an equilibrium in this market? Explain your answer.
The U.S supply of orange juice comes from Florida and Brazil. What is the effect of a freeze that damages orange crops in Florida on the market price of orange juice in the U.S? Use a diagram with supply and demand curves to illustrate your answer.
Ethanol is made from corn. Ethanol production increased 5.5 times from 2000 to 2008. What effect does the use of corn in order to produce ethanol have on the equilibrium price of corn?
Suppose the demand function for movies by FIU students is Q^dFIU = 200 – P, while the demand function for everyone else in Miami is Q^dMIA = 200 – 5P. What is the total demand function for movies?
If the supply of corn by the U.S is Q^sUS = a+bP, and the supply of corn by the rest of the world is Q^sW=c+eP, what is the entire world supply?
Consider the single-good commodity market model which can be described, as we did in class, by the two equations:

Q^d = c – dP(c, d >0)[demand]
Q^s = -e + fP(e, f >0)[supply]

Solve for equilibrium price and quantity.
Determine the effect a change in d will have on the equilibrium price and on the equilibrium quantity.
Determine the effect a change in f will have on the the equilibrium price and on the equilibrium quantity.
Show that if a per-unit tax of T dollars is imposed on the market, it does not matter whether the tax is levied on the consumers or producers equilibrium quantity is the same.

In a 2005 study titled “estimated of the supply and demand elasticities of California commodities,” green et al. estimated the supply and demand curves for California processed tomatoes, among other goods. The supply function estimated by the study is given by

Ln = XXXXXXXXXXln P,
Where Q is the quantity of processing tomatoes in millions of tons per year, and P is the price in dollars per ton. The demand function estimated by the study is
Ln =2.6 – 0.2 ln P XXXXXXXXXXln Pt,
Where Pt is the price of tomato paste in dollars per ton. In 2002, Pt = 110.

Solve for the equilibrium price and quantity of processing tomatoes.
Determine how the equilibrium price and quantity of processing tomatoes change if the price of tomato paste, in 2003, fall by 10%.
Now, suppose that government imposes a price floor on processing tomatoes at $65 per ton, how many tons of processing tomatoes will be sold in the market?

Suppose that the demand for cigarettes in a hypothetical economy is given by Q^d =2000 – 200Pc, where Q^d is the number of packs of cigarettes demanded and Pc is the price per pack. The supply of cigarettes is Q^s = 200Pc, where Q^s is the number of packs of cigarettes supplied.

Assuming the market is competitive; find the equilibrium price and quantity of cigarette packs.
Now, assume that in an effort to reduce smoking, the government levies a per-unit tax of $2.00 per pack on consumers. What is the price received by producers? The price paid by the consumers? The new market quantity?
What is the tax incidence for consumers? For producers?

Given the demand function Q^d = aP^-b derive the price elasticity of demand (E).
Given the supply function Q^s = c + dP derive the price elasticity of supply.
Given the supply function Q^s =dP, is the price elasticity of supply elastic, inelastic, or unit-elastic.
Suppose that the demand function for gadgets, is given by

Q^d = 1200 – 9.5P +16.2Pw + 0.2Y,
Where Q^d is the quantity of gadgets demanded I thousands, P is the price of gadgets, Pw is the price of widgets, and Y is weekly consumer income. If initially P = .45, Pw = .31, and Q^d = 1275, calculate the following:

Price elasticity of demand;
Cross price elasticity of demand; and,
Income elasticity of demand.

Assume that in a hypothetical economy the demand function for widgets is given by D(P(T)) and the supply function is S(P(T) – T), where demand depends on price, which in turn depends on the specific tax value, and supply depends on the price minus and the value of the tax.

Derive consumer incidence in terms of demand and supply elasticities.
Derive producer incidence in terms of demand and supply elasticities.
Show that as the supply curve becomes perfectly elastic, the entire incidence of the tax falls on consumers.

005_uvfv8zk-y2sxkbd0.docx

Robert · Accepted Answer

1. Suppose that the linear market supply curve starts on the price axis at $8 per box, and that 
the linear market demand curve hits the price at $7 per box. Is there equilibrium in this 
market? Explain your answer. 
Solution 
       When the linear market supply curve starts on the price axis at $8 per box, this implies    
that $8 per box is the minimum price at which they are willing to supply. As the supply curve 
is upward sloping, the price will not go below $8.  
The linear market demand curve hits the price axis at $7 per box. Since market demand is 
downward sloping, $7 is the maximum consumers are willing to pay. Above $7, the market 
demand is zero. Hence, there is no equilibrium in this case. The market demand curve and 
market supply curve diverge in opposite directions and do not intersect with each other.
2. The U.S supply of orange juice comes from Florida and Brazil. What is the effect of a 
freeze that damages orange crops in Florida on the market price of orange juice in the 
U.S? Use a diagram with supply and demand curves to illustrate your answer. 
Solution 
       Since Florida and Brazil supply orange juice to U.S., freeze in Florida affects the market 
price of juice in the U.S. Oranges are the main ingredients to make orange juice. Damage to 
orange crops in Florida thus negatively impact the supply of orange juice. There will be no 
change in market demand of orange juice in U.S. if other factors are kept constant. The 
equilibrium market price will also be affected. This can be by demand-supply analysis shown 
below.
As can be seen above, decrease in market supply of orange juice in U.S. leads to rise in 
equilibrium price level and reduction in equilibrium quantity. 
3. Ethanol is made from corn. Ethanol production increased 5.5 times from 2000 to 2008. 
What effect does the use of corn in order to produce ethanol have on the equilibrium 
price of corn? 
Solution 
       Ethanol is made from corn. Therefore, when ethanol production rises, the demand for 
corn rises as corn is used in ethanol production. Here we assume that supply curve of corn 
remains the same over the period of 8 years (2000-2008). It is upward sloping. When the 
demand of corn increases, equilibrium price of corn also changes. This can be shown with 
the help of demand/ supply diagram. 
As a result of increase in quantity demanded, both equilibrium quantity and price of corn 
increases. The slope of market supply curve of corn plays an important role in determining 
how much the equilibrium quantity of corn rises. If the market supply curve is steeper, the 
larger is the price increase as a result of increase in quantity demanded of corn.
4. Suppose the demand function for movies by FIU students is Q^dFIU = 200 – P, while the 
demand function for everyone else in Miami is Q^dMIA = 200 – 5P. What is the total 
demand function for movies? 
Solution
Q^dFIU= 200-P 
Q^dMIA= 200-5P 
As can be clearly seen, Q^dMIA is zero when P is above 40. Q^dFIU is zero when P is equal 
to or above 200. Therefore above P = 40, the total market demand is Q^dFIU, till P= 200 
above which market demand for movies is zero. When the P is below 40, the market demand 
curve is the addition of the two demand curves given in question. Therefore, 
Q^total= 0 when P> or = 200 
             = 200-P when 40 or = to –c/e 
        If we assume that –c/e is less than –a/b, then the entire world supply gets changed. In 
this case: 
        Q^sEW= 0 when P or = -a/b 
 (Note: a and c are assumed to be negative, and b and e are assumed to be positive.)
6. Consider the single-good commodity market model which can be described, as we did in 
class, by the two equations: 
Q^d = c – dP    (c, d >0)    [demand] 
Q^s = -e + fP     (e, f >0)   [supply] 
a) Solve for equilibrium price and quantity. 
b) Determine the effect a change in d will have on the equilibrium price and on the 
equilibrium quantity. 
c) Determine the effect a change in f will have on the the equilibrium price and on 
the equilibrium quantity. 
d) Show that if a per-unit tax of T dollars is imposed on the market, it does not 
matter whether the tax is levied on the consumers or producers’ equilibrium 
quantity is the same. 
      Solution  
              Q^d= c-dP (c, d>0) 
               Q^s= -e+ fP (e,

Suppose that the linear market supply curve starts on the price axis at $8 per box, and that the linear market demand curve hits the price at $7 per box. Is there an equilibrium in this market?...

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