1. A city has a large number of casinos. The demand by patrons for the games (in thousands per week) is Q_d = 90 - 3P and the supply is Q_s = 3P where P is the price charged to play a game.

What is the equilibrium number (quantity) of games played?

What is the equilibrium price?

2. Continue your analysis of the casino market in the city: demand by patrons for the games (in thousands per week) is Qd = 90 - 3P and the supply is Qs = 3P.  

Now suppose that the city passes a new law which requires that all casinos contribute m cents to a city charitable fund for each game played on their machines.

• In a diagram, show the effect of the new law on the market and explain. (Do not try to give an algebraic solution; just show what happens graphically and describe.)

Graphically indicate the incidence of taxation on consumers as well as casino owners (producers). Explain what incidence of taxation is and what your graph tells you about the incidence of taxation in this case.

3. Suppose there is a island with no international trade but capable of growing many types of fruit. Consider the market for bananas on this island (and for our purposes, suppose the currency on this island nation is called dollars, a very original name).

Assume the demand for bananas of Q_d = 1200 - 100P while supply is described by Q_s = 100P.

• Calculate the equilibrium price and quantity in the market for bananas.

Graphically depict this outcome.

Draw a diagram depicting the equilibrium in this market.

4. Suppose the government of the island has decided to give consumers a more attractive price for bananas by imposing a fixed, per unit subsidy.

Thus, start with the original demand (Q_d = 1200 - 100P) and supply (Q_s = 100P) and analyze this new intervention, the subsidy. The subsidy works like this: each banana seller receives a 2 dollar refund for each banana sold.

• Write down the equation for the new "effective supply" curve.
• Determine the new equilibrium quantity and equilibrium price.
• What is the price that the consumers will pay for their bananas? What is the price that the producers will effectively earn for their bananas, inclusive of the subsidy?
• Graphically depict the new equilibrium complete with (solved) values for all new price and quantity. (Label the original supply as S₁ and the new “effective supply” as S₂)