Question

Answer questions 1 though 5

Econ 206 Dr. George Problem Set #2 1) Consider the market for burritos (like Chipotle) a. Draw a supply and demand graph that shows the equilibrium price equal to $3.50 and the equilibrium quantity equal to 200 per day. Show the area of the graph that represents consumer surplus and the area that represents producer surplus On the graph, show the effect when the price of pizza falls (assuming that pizza and chipotle are substitutes). What happens to the equilibrium price and quantity? On a new graph, show the effect when the wages paid to Chipotle's employees falls. What happens to the equilibrium quantity and price? On another new graph, show the effect when the incomes of its customers increase. What happens to the new equilibrium quantity and price? On another new graph, show the effect of an expected increase in the pr over the next few weeks. What happens to the equilibrium price and quantity? b. c. d. e. ice of burritos 2) Pizzas and hamburgers are substitutes. Recently the equilibrium price of both has increased Can this be explained by a news report indicating that eating beef creates a health risk? Explain why or why not on a separate graph for each market (pizzas and hamburgers). Can the price change be explained by higher wages paid to workers in the pizza industry? Again, use two graphs in your answer a. b. 3) The equilibrium price of laptop computers has declined over the past few years while the equilibrium quantity sold has decreased. Propose an explanation for this pattern. Show that you are correct using a supply and demand graph Show on a well-Jabeled graph what will happen in the market for college professors in the following scenario: A large demographic "bulge" ends, and the number of potential college students declines. At the same time, there is an increase in retirements of older college professors. Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a separate demand and supply diagram for each to support your answers. 4) 5) a. The number of people at the most common ages for home-buying increases. b. Because of a threat of a war, people become uncertain about their economic future c. The overall level of saving in the economy diminishes. d. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans

Answer 1

(1)

(a) In following graph, price (P) and quantity (Q) of burrito are measured vertically and horizontally respectively. D0 and S0 are initial demand and supply curves intersecting at point E with initial price P0 and initial quantity Q0. Consumer surplus (CS = Area between demand curve and price) is area AEP0 and Producer surplus (PS = Area between supply curve and price) is area BEP0.

(b) Decrease in price of a substitute will decrease the demand for burritos, shifting demand curve leftward to D1, intersecting S0 at point F with lower price P1 and lower quantity Q1.

(c) Lower wage will reduce production cost and increase supply. Supply curve shifts rightward to S1, intersecting D0 at point F with lower price P1 and higher quantity Q1.

(d) Increase in consumer income will increase the demand for burritos assuming it is a normal good. Demand curve shifts rightward to D1, intersecting S0 at point F with higher price P1 and higher quantity Q1.

(e) Expected increase in future price of burritos will increase the current demand for burritos. Demand curve shifts rightward to D1, intersecting S0 at point F with higher price P1 and higher quantity Q1.

NOTE: As HOMEWORKLIB Answering Policy, 1st question is answered.