Question 1:
Use the information on the kumquat market in the table to answer the following questions.
a. What are the equilibrium price and quantity? How much revenue do kumquat producers receive when the market is in equilibrium? Draw a graph showing the market equilibrium and the area representing the revenue received by kumquat producers.
b. Suppose the federal government decides to impose a price floor of $30 per crate. Now how many crates of kumquats will consumers purchase? How much revenue will kumquat producers receive? Assume that the government does not purchase any surplus kumquats. On your graph from question (a), show the price floor, the change in the quantity of kumquats purchased, and the revenue received by kumquat producers after the price floor is imposed.
c. Suppose the government imposes a price floor of $30 per crate and purchases any surplus kumquats from producers. Now how much revenue will kumquat producers receive? How much will the government spend on purchasing surplus kumquats? On your graph from question (a), show the area representing the amount the government spends to purchase the surplus kumquats.
Question 2:
Suppose the current equilibrium price of cheese pizzas is $10, and 10 million pizzas are sold per month. After the federal government imposes a $0.50 per pizza tax, the equilibrium price of pizzas rises to $10.40, and the equilibrium quantity falls to 9 million. Illustrate this situation with a demand and supply graph. Be sure your graph shows the equilibrium price before and after the tax, the equilibrium quantity before and after the tax, and the areas representing consumer surplus after the tax, producer surplus after the tax, tax revenue collected by the government, and deadweight loss.