Question

Consider the following demand and supply schedule for eggs in USA for a given month (quantity figures are in millions of dozens) :

Price per dozen	Quantity demanded	Quantity supplied
$0.50	40	10
$1.00	30	30
$1.50	20	50
$2.00	30	70
$2.50	40	90

a.    Carefully graph the supply and demand curves. And identify the equilibrium price and quantity on your graph

b.    Calculate the total revenue of all egg producers in equilibrium

c.     Calculate the price elasticity of demand for a price change from $0.50 to $1.00, from $1.00 to $1.50, from $1.50 to $2.00, and from $2.00 to $2.50. (calculate the change in total expenditure if consumers could buy the quantities they wanted at each price.. . i.e., ignore the supply curve for now). Organize all of this information neatly into a table.

d.    As discussed by the text, the relationship between elasticity and changes in total revenue or expenditure, is this the information in your table consistent with our classroom theory ? Explain briefly.

e.    Suppose a price ceiling of $0.50 per dozen is imposed on the egg market, in order to help egg consumers. Will there be an excess deman or an excess supply in the egg market ? Of what value ? Illustrate this excess supply or demand on your graph.

f.      Suppose instead that the government decides to impose a price floor of $1.50 per dozen in order to help egg producers. How many eggs must the government pruchase to maintain the floor ? Illustrate on your diagram.

Answer 1

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