Econ 221 PS1 Fall 2023 c. What disequilibrium situation is created by the price floor, and what is its magnitude? Label this surplus or shortage on the graph. d. Next we'll conduct a welfare analysis of the intervention using the letters labeled on the graph. In each box, list the letters that represent the relevant areas (for example: "X + Y + Z"). In the "change" column, specify whether each increased, decreased, or stayed the same with the policy in place. No need to calculate any values. Equilibrium With Price Floor Change Consumer Surplus Producer Surplus Total Surplus e. Summarize what happened to surplus when the price floor was put in place. Who benefited, and who was hurt by the policy? f. Does the price floor cause deadweight loss (DWL)? If so, which area does it represent? List the letters, then calculate the dollar value by finding the area of that region on the graph. g. What is the policy goal of a price floor? Based on your analysis above, was that goal achieved with this policy? How do you know?Econ 221 P51 Fall 2023 cl. On the graph, label the two price points and their corresponding quantities demanded, which outline the rectangles representing total revenue before and after the price change. Identify and label the smaller rectangles representing the price effect and quantity effect as price changes from $50 to $40. Which effect is larger? Does this match your answer from (c)? (Hint: You can use the squares on the graph to help determine which is larger] e. Check your answer to (d) by calculating the total revenue [P x Q) before and after the price change (at P=$50 and P=$40]. Verify that this conrms your answer from part (d). Econ 221 P51 Fall 2023 3) FEB and Total Revenue [5 points} A demand curve is shown on the graph below. Suppose the price has decreased from $50 to $40. On the graph, you can nd the corresponding quantities demanded for each price point. a. Calculate the price elasticity of demand for Price this good between these two points using 390 the midpoint method. Calculate the numerator and denominator to 4 decimal 380 places, then divide. Show all work 61: don't 70 forget the sign. 8 $60 $50 $40 $30 $20 $1 0 Demand 0 10 20 30 40 50 Quantity b. Interpret your elasticity calculation. ls demand inelastic, elastic, or unit elastic? c. Based on that elasticity calculation, which effect from the decrease in price will be larger, the price effect or quantity effect? What do you know will happen to total revenue after the price decrease? How do you know, without needing to calculate total revenue? Econ 221 P51 Fall 2023 2) Changes in Equilibrium (6 points) For each ofthe scenarios below, analyze how it will impact supply, demand, equilibrium price, and equilibrium quantity for the good specified. For each, include the following components in the space provided: 1) The relevant determinant[s] and whether this increases or decreases supply or demand. 2) A graph showing the shift in the appropriate curve[s) and the change in equilibrium. 3] Specify what happens to the equilibrium price and quantity specically whether each increases, decreases, stays the same, or is indeterminate. Feel free to use shorthand (for example, arrows to indicate increases and decreases in P' and Q"). On each graph, be sure to label both axes, both curves, and equilibrium. a. Chips and guacamole are often consumed together. If the price of chips decreases, how will this impact the market for guacamole? b. Suppose that sellers expect the price of watches to increase in the future. How will this impact the market for watches? c. Suppose consumer income decreases and pizza is a normal good. At the same time, the price of cheese decreases. How will this impact the market for pizza? Econ 221 P51 Fall 2023 5) Income Elasticity of Demand (3 points) Suppose that when the average family income rises from $80,000 per year to $90,000 per year. the average family's purchases of beef rises from 80 to 92 pounds per year. a. Calculate the income elasticity of demand for beef using the midpoint method. Calculate the numerator 3: denominator to 4 decimal places, then divide, and show all work. b. Briey interpret your result. Based on the sign ofthis number, what type of good is beef? Based on the magnitude, what type of good is beef":I 2] Welfare Analysis: Price Floor {8 points] The graph to the right shows the supply and demand for coffee in a small town. $22.00 $20.00 Price of coffee (per ID) a. Calculate the dollar value ofconsumer, producer, and total surplus with the 318-00 market in equilibrium. Show your work. $16.00 31400 31200 $10.00 $8.00 Producer Surplus = 3600 Consumer Surplus = $4.00 $2.00 TotalSurplus= 0 20 40 50 80100120140160180200 Quantity of coffee (lbs) b. Now suppose the government imposes a price oor of $14 per pound of coffee. Draw the price oor on the graph and clearly label the new quantities supplied and demanded. What is the new quantity sold with the price floor in place? 4] Price Elasticity ofSupply (3 points] Suppose the price elasticity of supply for eggs is 0.8. a. Ifthe price of eggs decreases 10%, what will happen to the quantity of eggs supplied? Will it increase or decrease, and by how much [as a %)? Show your work. [Hint- use thegeneral elasticity formula, PES = %AQ /%AP, and solve for the % change in quantity. ] b. How much would price have to rise to increase egg production by 12 percent? Show your work. Econ 221 P51 Fall 2023 5) Income Elasticity of Demand (3 points) Suppose that when the average family income rises from $80,000 per year to $90,000 per year, the average family's purchases of beef rises from 80 to 92 pounds per year. a. Calculate the income elasticity of demand for beef using the midpoint method. Calculate the numerator & denominator to 4 decimal places, then divide, and show all work. b. Briey interpret your result. Based on the sign of this number, what type of good is beef! Based on the magnitude, what type of good is beef? 2] Welfare Analysis: Price Floor [3 points] The graph to the right shows the supply and demand for coffee in a small town. 822 00 320 00 Price of coifee (per lb) a. Calculate the dollar value of consumer, producer, and total surplus with the 51500 market in equilibrium. Show your work. $1600 $1400 $1200 51000 5800 Producer Surplus = so 00 Consumer Surplus = sum