Question

1. Assume that the (weekly) market demand and supply of tomatoes are given by the following figures: Price per k l .00 . .0 2.0 2.00 1. 100 0.000 kilos) 30 35 50 60 0,00 ) 2 0 15 (a) What are the equilibrium price and quantity? (b) What will be the effect of the government fixing a minimum price of £3 per kilo: (i) €1.50 per kilo? (c) Alternatively, suppose that the government guaranteed tomato producers a price of £2.50 per kilo. (i) How many tomatoes would it have to buy in order to ensure that all the tomatoes produced were sold? (ii) How much would this cost the government? (d) Alternatively, suppose it bought all the tomatoes produced at £2.50. i) At what single price would it have to sell them in order to dispose of the loro What would be the net cost of this action? 2. Think of some examples where the price of a good or service is kept below the equilibrium. In each case consider the advantages and disadvantages of the policy. 3.In most countries in South America, the legal driving age is 18. If the legal driving age in the United States was raised from 16 to 18, how would this affect the market for new and used automobiles? What would happen to the equilibrium price and quantity of new and used automobiles? 4. In each of the following situations, list what will happen to the equilibrium price and the equilibrium quantity for a particular product, which is an inferior good. a. The population increases and productivity increases b. The income increases and the price of inputs decrease c. The number of firms in the market decreases and income increases d. Consumer preference increases and the price of a complement decreases. e. The price of a substitute in consumption decreases and the price of a substitute in production decreases.

Answer 1

1.

a) Equilibrium is where Qd = Qs

According to the table,

Equilibrium Price = 2.00 and quantity = 50

b)  (i) minimum price of € 3.00 will lead to excess supply of 22 (62-40) thousand kilos.

(ii) minimum price of € 1.50 will lead to excess demand of 10 (55-45) thousand kilos.

c)

i) 10 thousand.

It is so because at 2.50 price there will be excess supply of (55-45) = 10 thousand kilos.

ii) €25000

Cost to government = 2.50*10,000 = 25000

d) i) It dispose it all at   €1.50 because at 1.50, Quantity demanded will also be 55,000

ii) €55,000

Net cost = (2.50-1.50)*55000 = 55,000

**First question is fully answered please post other questions separately**