Always show all work when solving problems.
SECTION ONE: 2 points
Brad and Angelina are the only demanders of candy bars. Their demand schedule is as follows:
$0.00 12 7
0.50 10 6
1.00 8 5
1.50 6 4
2.00 4 3
2.50 2 2
3.00 0 1
Good and Plenty are the only two companies supplying candy bars. Their supply schedule is as follows:
$0.00 0 0
0.50 0 0
1.00 1 0
1.50 2 2
2.00 3 4
2.50 4 6
3.00 5 8
a) Draw a market demand curve showing each price and quantity . Please TYPE what is true at $1.
b) Draw a market supply curve showing each price and quantity. Please TYPE what is true at $1.
c) Draw a figure showing the market equilibrium price and quantity. Please type an explanation of what you have just drawn.
d) What would be true if the price of candy bars was 50 cents below the equilibrium price?
** No credit will be given if all the typed answers are not included.
SECTION TWO: 1.5 points
In this section, you will be discussing the concept of elasticity.
a) In this part, you will be solving for various price elasticities of demand. I will give you a number of prices with their quantities demanded. Please set up a table for each price and quantity (columns 1 and 2) Column three will show total revenue at each price /quantity combination. Column four will show each price elasticity of demand. Note that each elasticity will be between two prices; for example, you will find the price elasticity of demand between $7 and $6, then between $6 and $5, and so on. Here are the numbers to get you started:
When complete, you will have calculated 7 elasticities.
b) What is true of price elasticity of demand as price falls from $7 to $0? Explain.
SECTION THREE: 0.5 points
Assume demand for a food product is inelastic. At $3, farmers sell 100 bushels of this food product. An advance in technology drops the price of the product to $2 where farmers sell 110 bushels of the food product.
a) Are the farmers better off or not? Explain.
b) Are supply and demand more likely to be elastic in the short run or the long run? Explain your answer.
SECTION FOUR: 1 point
Here, you will provide short answers to a number of questions.
a) a) A group of moviegoers buy popcorn during a movie. Each person has an income of $110. At 25 cents an ounce, 12 ounces of popcorn are purchased during the movie. A month later, each person has an income of $120 and 16 ounces of popcorn are purchased during the movie.
Calculate and show the income elasticity of demand for popcorn.
b) Is popcorn a normal or inferior good?
c) Is the minimum wage a price ceiling or a price floor? Explain.
d) Is the minimum wage efficient or inefficient? Please explain fully your answer.
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