AGEC 429: AGRICULTURAL POLICY LECTURE 9: CONSUMER AND PRODUCER BEHAVIOR III

Transcription

1 AGEC 429: AGRICULTURAL POLICY LECTURE 9: CONSUMER AND PRODUCER BEHAVIOR III

2 Problem Set #1 (50 Points) AGEC 429 Due Date: Tuesday, February 12, 2019 USING ELASTICITIES Do Not Use These Slides for the Answers You Hand In. These are for in class use only. 1. If the price of Yoplait yogurt decreases by 22% and the elasticity of Yoplait yogurt supply is 1.5, what will happen to the quantity supplied of Yoplait yogurt and by how much?

3 2. Suppose that the quantity demanded of 2% fat milk decreases by 9% and that the price elasticity of demand for 2% fat milk is 1.8. What will happen to the price of 2% fat milk and by how much?

4 3. If the own price elasticity of potato chip supply is 4.0 and the price of potato chips is $3.40/bag, what would be the price of a bag of potato chips if the quantity of potato chips bags supplied increased from 2,325,000 bags to 2,790,000 bags?

5 4. If the own price elasticity of salmon demand is 0.1 and 310,000 lb of salmon are consumed, what would be the change in the pounds of salmon consumed if the salmon price increases from $4.40/lb to $4.73/lb?

6 5. If the equilibrium quantity of quinoa produced in Peru is 250 million lb and the equilibrium price of quinoa is $2.25/lb, by how much would the quantity supplied change if the price dropped by 60% given a quinoa supply elasticity of 0.25?

7 6. In the week before the Superbowl, guacamole cost $5.55/package and 10,255,500 packages were purchased. This week the price has gone down to $4.44/package. How many packages of guacamole will be supplied today if the price elasticity of guacamole supply is 0.5?

8 7. Assume that advertising shifts the demand curve for Coca Cola to the right along the supply curve which pushes the Coca Cola price up by 45%. If the old equilibrium price of Coke was $1.33/liter bottle and the old equilibrium quantity is 13,360.0 million liter bottles, the elasticity of Coca Cola supply is 0.50 and the elasticity of demand is 1.83, what is the new equilibrium quantity demanded of Coca Cola? What is the new equilibrium quantity supplied? (HINT: Be careful! Think about it.) D D S

9 8. Assume that bad weather shifts the supply curve for papayas along the demand curve to the left which increases the papaya price to $1.06/papaya. If the original equilibrium price of papayas is 53 cents/papaya and the original equilibrium quantity is 22,535,300 papayas, the elasticity of papaya supply is 1.15 and the elasticity of demand is 0.15, what is the new equilibrium quantity demanded of papayas? What is the new equilibrium quantity supplied? (HINT AGAIN: Be careful! Think about it.) D S S

10 9. The average price of gasoline in Texas in January 2018 was about $2.248/gallon and the Texas consumption of gasoline that month was million gallons. The average price of gasoline in Texas was about $2.354/gallon last month (January 2019). The elasticity of Texas gasoline demand is By how much did gasoline consumption in Texas change between January 2018 and last month? What was Texas gas consumption last month?

11 10. The government has implemented a new policy to support the price of chickpeas at $12.81/cwt. (A cwt means hundred weight or 100 pounds but that is not important for the answer). If the chickpeas market equilibrium price is $10.55/cwt, the equilibrium quantity of chickpeas is million cwt, the elasticity of supply is 0.25, and the elasticity of demand is 0.75, then what is the new quantity supplied and the new quantity demanded of chickpeas at the support price? How much chickpeas would the government need to buy to keep the price supported at $12.81/cwt? D S

12 11. Producer surplus is calculated as the difference between and. 12. What is the sum of consumer surplus and actual consumer expenditures? 13. What do we call the responsiveness of demand to changes in its own price?

13 14. At price P 1, what is (are) the area(s) on the graph that represent a. producer surplus S b. consumer WTP a c. Total welfare P 1 b c d D Q 1

14 ANSWER THE FOLLOWING QUESTIONS USING THE GRAPH BELOW 15. What is (are) the area(s) representing producer surplus if the price is P 1? 16. What is (are) the area(s) representing consumer surplus if the price is P 1? P 2 P 1 a h b e c f i j S 17. What is (are) the area(s) representing the CHANGE in consumer surplus if the government sets a minimum price of P 2 (price increases from P 1 to P 2 )? d g D Q3 Q 1 Q What is the new producer surplus if demand shifts to the right so that the new market price and quantity are P 2 and Q 2? 19. By how much does the producer surplus CHANGE if demand shifts to the right so that the new market price and quantity are P 2 and Q 2?

15 ANSWER THE FOLLOWING QUESTIONS USING THE GRAPH BELOW (Cont d) 20. What is the new consumer surplus if the supply curve shifts to the left so that the equilibrium new price and quantity are P 2 and Q 3? 21. How much must the government buy off the market to support the market price at P2 (above the equilibrium market price of P1)? P 2 P 1 a h b d e c g f i j S D 22. By how much does the sum of producer and consumer surplus change if the government sets P2 as the support and purchases the surplus created? Q3 Q 1 Q At P 1, what is actual producer revenue?

16 ANSWER THE FOLLOWING QUESTIONS USING THE GRAPH BELOW (Cont d) 24. At P 2, what is producer revenue? 25. At P 1, what is the total economic welfare? P 2 P 1 a f b e j c h i g d S D Q3 Q 1 Q 2