Question 1. The market for laptops is described by the following supply and demand equations:
Demand: P = 600 – 7Q
Supply: Q = P – 200
a) Find the equilibrium price and quantity in this market.
b) If the government imposes a price floor of $320 in this market, find the size of the resulting surplus.
Question 2. Fill in the blanks below to describe what happens in each market.
a) The New York Times prints an article about a new study which shows that radiation from microwave ovens can be harmful to children. In the market for microwaves, this will cause the ________ curve to shift to the ________.
b) After a long bargaining process, the United Auto Workers union (which provides all labor for car companies) wins a large pay raise. In the market for automobiles, this will cause the ________ curve to shift to the _______.
c) Economists estimate that when the price of popcorn rises, the demand curve for Snickers bars shifts to the left. This means that popcorn and snickers are ________ goods.
d) Economists estimate that in wealthier communities, individuals are willing to pay more for clean air. This means that clean air is a (an) ________ good.
e) Assume that there is a technological improvement in bullhorn manufacturing at the same time that the government passes a law forbidding the use of bullhorns at night. In the market for bullhorns, the equilibrium price will ________ while the equilibrium quantity will ________.
Question 3. The market for wheat is described by the following supply and demand equations:
Demand: P = 80 – 3Q
Supply: P = 10 + 2Q
a) Assume the government wishes to help farmers by establishing a price support at $50 per bushel of wheat. If storing wheat is costless, what is the total cost of this program to the government?
b) Now assume that the government decides to help farmers by establishing a price subsidy, guaranteeing farmers a price of $50 per bushel of wheat. What is the total cost of this program to the government?