The demand curve for product X is given by: Qd X = 500  5PX and the supply curve is given by: QS X = 10PX (a) What is the function for inverse demand? What is the function for inverse supply? (b) What is the equilibrium price and quantity in this market? Label your answers "P " and "Q" and draw boxes around your answers. (c) Show your answer to (b) graphically with PX on the vertical axis and X on the horizontal axis. Label all intercepts and slopes. (d) What is the value of consumer surplus for the equilibrium in (b)? (e) If the government brought in a price ceiling of 25, how many units would be sold? 

2. (5 points) (LO2) A low-cost analyst has been hired to estimate monthly demand for smoothies (S) in the Biltmore area of Phoenix. They deliver the following: Qd S = 6, 000  0.5PS + PC  PG + 0.10m with only a set of very brief notes (you get what you pay for): PS is the price of a smoothie in the market. PC is the price of a coffee in the market. PC = 4. PG is the price of a gym membership in the market. PG = 100. m is average monthly consumer income in the market. m = 7, 000. (a) Is coffee a substitute or a complement for smoothies? Explain in one sentence or less. (b) Is a gym membership a substitute or a complement for smoothies? Explain in one sentence or less. (c) Are smoothies a normal good or an inferior good? Explain in one sentence or less. (d) If you were to enter this market with a price of $12, how many smoothies would you sell? (e) Show your answer to (d) graphically with PS on the vertical axis and S on the horizontal axis. Label intercepts and slope. You must concentrate the demand function to have Qd S be a function of only PS . Page 1 of 2

 

3. (5 points) (LO3) Florida, like several other states, has passed a law that prohibits "price gouging" immediately before, during, or after the declaration of a state emergency. Price gouging is defined as "selling necessary commodities such as food, gas, ice, oil, and lumber at a price that grossly exceeds the average selling price for the 30 days prior to the emergency." Consider the case of a hurricane in Florida and a commodity like bottled water: (a) What do you think the direct impact of the hurricane is on demand for bottled water? Explain your answer in three sentences or less. (b) What do you think the direct impact of the hurricane is on the supply of bottled water? Explain your answer in three sentences or less. (c) How is your answer to (b) impacted if consumers try to "stock up" on emergency supplies before the hurricane? (d) What would a basic supply and demand analysis tell us about the equilibrium price and quantity changes that would occur in the ABSENCE of the new law? Explain your answer in three sentences or less. (e) What would be an economic-based criticism of this law? Explain your answer in three sentences or less.