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Below are Jill and John's marginal willingness-to-pay schedules for organic apples.

Consumption Level (apples/week) 0 1 2 3 4 5 6 7 8

Marginal WTP Jill 4.00 3.20 2.60 2.20 1.80 1.50 1.30 1.20 John Market 5.20 4.00 3.00 2.10 1.30 0.60 0.30 0 _____ _____ _____ _____ _____ _____ _____ _____

$5.00 $6.40 _____

Construct the aggregate marginal willingness to pay (the market demand curve) for this group of two people. INSTRUCTIONS: Enter values from left to right as you go down the table. Enter to two decimal places.

$
___11.40___ ___9.20___ ___7.20___ ___5.60___ ___4.30___ ___3.10___ ___2.10___ ___1.60___ ___1.20___ (10 %) (10 %) (10 %) (10 %) (10 %) (10 %) (10 %) (10 %) (10 %)

If the Market price were $3.10, how many apples would Jill buy? ___2___ apple(s). (10 %)

Question 2

2 / 2 points

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market? Specifically, does each pair of changes lead to increases, decreases, or an indeterminate outcome for price and quantity? Remember to Spell Check. a. Supply decreases and demand is constant. Price ___increases___ Quantity ___decrease___ (12.5 %) (12.5 %)

b. Demand decreases and supply is constant. Price ___decreases___ Quantity ___decreases___ (12.5 %) (12.5 %)

c. Supply increases and demand is constant. Price ___decreases___ Quantity ___increase___ (12.5 %) (12.5 %)

d. Demand increases and supply increases. Price ___indeterminate___ Quantity ___increases___ (12.5 %) (12.5 %)

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6 / 6 points

Gotham are as given in the table below.

Suppose that the demand and supply schedules for rental apartments in the city of

Monthly Apartments Apartments Rent Demanded Supplied $2,500 2,000 1,500 1,000 500 10,000 12,500 15,000 17,500 20,000 15,000 12,500 10,000 7,500 5,000

Enter all values to the nearest whole number and spellcheck any word entries for spelling errors. a. What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied? Market equilibrium rental price: $

___2000___ (10 %) per month Market equilibrium quantity: ___12500___ (10 %) apartments b. If the local government can enforce a rent-control law that sets the maximum monthly rent at $1500, will there be a surplusor a shortage? ___shortage___ Of how many units? ___5000___ (10 %) apartments per month How many units will actually be rented each month? ___10000___ (10 %) apartments will be rented. c. Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged is $2500 per month. If the government can enforce that price floor, will there be a surplus or a shortage? ___surplus___ (10 %) (10 %)

Of how many units? ___5000___ (10 %) apartments per month How many units will actually be rented each month? ___10000___ (10 %) apartments will be rented. d. Start at the original (correct) equilibrium price and quantity in part (a). Suppose that the government wishes to decrease the market equilibrium monthly rent by increasing the supply of housing. Assuming that demand remains unchanged, by how many units would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to $1000 per month? To $500 per month? Fall to $1000 per month:

___10000___ (10 %) units Fall to $500 per month: ___15000___ units (10 %)

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5 / 5 points

Consider a Market for Dufflebags. Assume the following values for the figures below: Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market equilibrium price is $45 per bag. In Figure a, the price at point a is $85 per bag, the price at point c is $5 per bag, the price at point d is $55 per bag, and the price at point e is $35 per bag. In Figure b, the price at point f is $59 per bag and the price at point g is $31 per bag -- values for points a, b, and care the same as in Figure a. Apply the formula for the area of a triangle (Area = x Base x Height) to answer the following questions.

a. What is the dollar value of the total surplus (producer surplus plus consumer surplus) when the allocatively efficient output level Q1is being produced? $ ___800___ (17 %)

How large is the dollar value of the consumer surplus at that output level Q 1? $ ___400___ (17 %)

b. What is the dollar value of the deadweight loss when output level Q2 is being produced? $ ___50___ (17 %)

What is the total surplus when output level Q2is being produced? $ ___750___ (17 %)

c. What is the dollar value of the deadweight loss when output level ___98___ (16 %)

Q3 is produced? $

What is the dollar value of the total surplus when output level Q3 is produced? $ ___702___ (16 %)

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5 / 5 points

Look at the tables below, which show, respectively, the willingness to pay and willingness to accept of buyers and sellers of bags of oranges. For the following questions, assume that the equilibrium price and quantity will depend on the indicated changes in supply and demand.

Assume that the only market participants are those listed by name in the two tables.

Consumers Producers Maximum Actual Price Minimum Actual Price Price Person (Equilibrium Person Acceptable (Equilibrium Willing Price) Price Price) to Pay Bob $13 $8 Carlos $3 $8 Barb 12 8 Courtney 4 8 Bill 11 8 Chuck 5 8 Bart 10 8 Cindy 6 8 Brent 9 8 Craig 7 8 Betty 8 8 Chad 8 8
Answer all values in whole numbers. a. Given that the equilibrium price is $8, what is the equilibrium quantity given the data displayed in the two tables? Equilibrium quantity =

___6___

(20 %)

bag(s) b. What if, instead of bags of oranges, the data in the two tables dealt with a public good like fireworks displays? If all the buyers free ride, what will be the quantity supplied by private sellers? Q = ___0___ (20 %)

c. Assume that we are back to talking about bags of oranges (a private good), but that the government has decided that tossed orange peels impose a negative externality on the public that must be rectified by imposing a $2-per-bag tax on sellers. What is the new equilibrium price ? P = $ ___9___ (20 %)

What is the new equilibrium quantity? Q = ___5___ (20 %) bag(s) If the new equilibrium quantity is the optimal quantity, by how many bags were oranges being overproduced before? Q= ___1___ bag(s) (20 %)