New Mexico State University AGE/ECON 337V Natural Resource Economics Homework #3 Chapter 3, 2020 Supply and Demand Passed out September 8, 2020 Due September 15, 2020 Many of you know that modern chile peppers were developed by NMSU horticulturist Fabian Garcia in 1894, for which a crowd-sourced (CS) bio is at https://en.wikipedia.org/wiki/Fabian_Garcia The New Mexico chile pepper, which typically grows from a green to a ripened red, are popular in the foods of the American Southwest, and are a staple of New Mexican cuisine. A big question we all face when we eat out is 'Red or Green?' Suppose total annual demand and supply of Hatch Green Chile is shown in the following table. https://www.nass.usda.gov/Quick_Stats/Ag_Overview/stateOverview.php?state=NEW%20MEXICO . A highly entertaining history of demand and supply, going back 2000 years, is available at the CS https://en.wikipedia.org/wiki/Supply_and_demand price per ton tons demanded tons supplied surplus (+) or shortage (-) price demand supply surplus shortage 900 250 050 800 350 950 700 450 350 600 550 750 500 650 650 100 750 550 300 850 450 Check out this web page on NM Chile: https://en.wikipedia.org/wiki/New_Mexico_chile 1. What is the equilibrium price? What is the equilibrium quantity? Fill in the surplus/shortage column and use it to defend your answers to a critic. 2. Graph the demand for Hatch Green Chile and the supply of Hatch Green Chile. Be sure to label the axes of your graph correctly. Label equilibrium price P and equilibrium quantity Q. 3. Why will $500 per ton not be the equilibrium price? Do you agree with this statement: Surpluses drive prices up; shortages drive them down. Why or why not? 4. Suppose government policy establishes a maximum legal (ceiling) price of $400 for Hatch Green Chile. Explain the effects of this ceiling price. You may show your answer graphically. What might motivate the government to establish a ceiling price? 5. Extra Credit (5 points): Can you write an algebraic equation summarizing each of these two relations (supply and demand)? Can you solve those two equations simultaneously (high school algebra) and show that the equilibrium price and quantity match your answers in 2 above? Show work