Question 1: Supply & Demand (10 Marks)

A consumer is having pizza for dinner and their marginal benefit per slice is given in the table below. If a slice of pizza costs $4 then how many slices should this consumer purchase? If instead, the pizza parlour only charged an entrance fee of $12 how many slices should this consumer eat?

Slice 1st 2nd 3rd 4th 5th

Marginal Benefit $7 $5 $3 $1 -$1

1)Consider the below demand and supply schedules for widgets and carefully illustrate this market to scale. Include all labels, intercepts and graphically calculate equilibrium price and quantity.

Price Quantity Demanded Quantity Supplied

$5 10 1

$7 8 2

$9 6 3

2)Consider the table in b) and assume that the government now introduces a price ceiling of $7 and calculate the impact this policy will have on the market for widgets.

3)Sketch the market for bicycles. Now assume that the market for bicycles experiences the following shocks: 1) A study links bike riding with prostate cancer (this impacts only 50% of bike users) and 2) A new robotic bike assembly process has been invented (100% of bike firms adopt this new process). Add the impact of this shocks to your market for bicycles sketch.