Economics

1.(50 points) Consider the market for coffee.

  1. Draw the supply and demand graph for coffee below assuming the market operates at an equilibrium price of $2.40 and an equilibrium quantity of 5,000.
  2. Assuming tea and coffee are substitutes, what will happen in the market for coffee if the price of tea increases? Show the effects on your market.
  3. Based on this information, will producer surplus in the market for coffee increase or decrease? Explain.

2. (50 points) Consider the market for basketball sneakers, which is drawn below. Answer each of the following questions.

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figure

  1. If this market operates at equilibrium, what areas represent the consumer surplus that will occur?
  2. If this market operates at a price of $61, how many units will producers sell?
  3. If the price is $260, how many units will be produced, but not actually sold?
  4. If this market operates at a price of $80, what areas represent the producer surplus that will occur?
  5. If this market operates at a price of $80, what areas represent the consumer surplus that will occur?
  6. Now, suppose the government requires that all units sold in the market must be sold at a price of $400. How many consumer surplus will occur given this new market price?