NAME:

There are four (4) questions, each with their own sub-parts.Make sure to address each sub-part.If you have any questions, please let me know.

SCENARIO

Megan has contracted your services to do some economic analysis at her ranch. She currently produces two types of livestock:

1. Arabian Stallions
2. Goats
   • $4.00 for 1 gallon of diesel.

She has hired you to make some decisions about how she runs her ranch, as well as the things she produces.

QUESTION ONE: Individual Economizing Problem

Megan currently budgets $240 a month to spend on fuel for her vehicles. (Both for use on and off the ranch.) She has a truck which uses diesel and a car which uses gas. On the graph and schedule below, show the combinations of diesel and gas if the prices for both are as follows:

• $3.00 for 1 gallon of gas.

Then, answer these questions:

1. What does this budget constraint show about tradeoffs between 2 goods?
2. What would happen if her fuel budget increased to $300?

QUESTION TWO: Market Analysis - Arabian Stallions

Part One - Megan has raised thee Stallions for a few years, and has seen the market for feed at different points. Currently, the market is reflected in the data shown below.

Price	Quantity Demanded	Quantity Supplied
$15	100,000	1,000
$25	75,000	7,000
$40	40,000	15,000
$50	25,000	25,000
$60	12,000	31,000
$75	8,000	40,000
$100	5,000	50,000

1. Based on this data, draw each graph and label them correctly. (Make sure to identify equilibrium.)
2. What will happen if:
   • Price is set $25 below equilibrium. (Include the size of the surplus or shortage)
   • Price is set $10 above equilibrium. (Include the size of the surplus or shortage.)

Part Two - On this new set of axes, draw the market for Arabian Stallions. (Note: The market above was just for feed.)

1. What would happen in this marketif the price of feed were set $10 above equilibrium? (Show that on the graph.)
2. Use the four-step process to draw the market and identify the change.

QUESTION THREE: Market Analysis - Goats

Aubrey, a nearby farmer, likes raising beef. He recently bragged about how the sales price of cattle has risen 200% from where it was three months ago. Meg hasn't been as lucky, as she's seen the sales price of goats fall dramatically in that same time frame. With this information in mind, Meg wants you to do some analysis.

1. Draw the market for goats in its initial state, three months ago.
2. Show the change in this market which matches the outcome stated above. (Hint: This is a consumer-side effect.)
3. Why did this change occur?

1. How could Meg respond to this information?What would happen to the market if other producers like her responded similarly? (Hint: This would be a producer-side effect.)

QUESTION FOUR: Market Failures

Without Meg knowing, Aubrey has been dumping his trash on her property. Upon discovering this, she comes to you looking for some information.

1. What type of market failure is this an example of?
2. How could she correct this problem?
3. What could governments do about this problem?