1. The markets for sugar, donuts and coffee are interrelated, and each is perfectly competitive. a)...
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1. The markets for sugar, donuts and coffee are interrelated, and each is perfectly competitive. a) In the market for sugar, the equilibrium price is $5.00 per pound and the equilibrium quantity is 500 pounds per week. Suppose the government imposes a price ceiling on sugar at $4.00 per pound, causing the quantity supplied to decrease to 300 pounds per week. (i) draw a correctly labeled graph showing the price ceiling. (ii) would the price ceiling result in a surplus, shortage or neither? Explain. (iii) calculate the price elasticity of supply for the price free from $5.00 to $4.00. Show your work. (iv) between $5.00 and $4.00, is the supply elastic, inelastic or unit elastic? Explain. (b) Sugar is an input for donuts. (i) draw a correctly labeled graph for the donut market, indicate the equilibrium price and quantity, labeled Po and Qo respectively. dereuse (ii) on the graph drawn for part (b)(i), show the impact of an increase in the price of sugar on the market for donuts, labeling the new equilibrium price and quantity, Pi and Qi respectively. (iii) on the same graph, completely shade the area that represents the change in the consumer surplus caused by the increase in the price of sugar. (c) In the market for coffee, the equilibrium price is $2.00 per cup and the equilibrium quantity is 400 cups per week. The cross elasticity of coffee with respect to donuts is -5. (i) are coffee and donuts normal goods, inferior goods, complementary goods or substitute goods? (ii) assume the supply of coffee is perfectly elastic. Using the equilibrium price and quantity given above in (c) (i), draw a correctly labeled graph for the coffee market, show the impact of an increase in the price of donuts on the coffee market. (iii) given the original quantity of 400 cups per week, if the decrease in the price of donuts is 20%, calculate the new equilibrium quantity in the coffee market. Show your work. 1. The markets for sugar, donuts and coffee are interrelated, and each is perfectly competitive. a) In the market for sugar, the equilibrium price is $5.00 per pound and the equilibrium quantity is 500 pounds per week. Suppose the government imposes a price ceiling on sugar at $4.00 per pound, causing the quantity supplied to decrease to 300 pounds per week. (i) draw a correctly labeled graph showing the price ceiling. (ii) would the price ceiling result in a surplus, shortage or neither? Explain. (iii) calculate the price elasticity of supply for the price free from $5.00 to $4.00. Show your work. (iv) between $5.00 and $4.00, is the supply elastic, inelastic or unit elastic? Explain. (b) Sugar is an input for donuts. (i) draw a correctly labeled graph for the donut market, indicate the equilibrium price and quantity, labeled Po and Qo respectively. dereuse (ii) on the graph drawn for part (b)(i), show the impact of an increase in the price of sugar on the market for donuts, labeling the new equilibrium price and quantity, Pi and Qi respectively. (iii) on the same graph, completely shade the area that represents the change in the consumer surplus caused by the increase in the price of sugar. (c) In the market for coffee, the equilibrium price is $2.00 per cup and the equilibrium quantity is 400 cups per week. The cross elasticity of coffee with respect to donuts is -5. (i) are coffee and donuts normal goods, inferior goods, complementary goods or substitute goods? (ii) assume the supply of coffee is perfectly elastic. Using the equilibrium price and quantity given above in (c) (i), draw a correctly labeled graph for the coffee market, show the impact of an increase in the price of donuts on the coffee market. (iii) given the original quantity of 400 cups per week, if the decrease in the price of donuts is 20%, calculate the new equilibrium quantity in the coffee market. Show your work.
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a i The graph for the market of sugar is as follows Price P ceiling 400 Supply Equilibrium price 500 Demand Quantity pounds per week ii The price ceil... View the full answer
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