Section 3

The town of Bree is the center for pipeweed trade in the northwest of Middle Earth. Trading is conducted at the Inn of the Prancing Pony, specializing in the high quality Longbottom Leaf from the South Farthing.

a) Draw demand and supply for the Bree pipeweed market. Show the equilibrium price and quantity.

b) A large party comes up from Isengard in the south to participate in the pipeweed market. Draw what happens in the Bree market. Show three separate pipeweed market scenariosone with a higher equilibrium price, one with a lower equilibrium price and one with the same equilibrium price. What is the determinant in each case? Do 3 graphs.

c) Nine nasty black horsemen trample most of the pipeweed crop in the South Farthing of the Shire, the main growing center for tobacco leaf. Draw what happens in the Bree pipeweed market. What happens to the equilibrium price and quantity?

d) The Thain of the Shire placed a price ceiling on pipeweed below the equilibrium price. Draw the pipeweed market showing market price, equilibrium price, quantity demanded and quantity supplied. What condition in the market results from the price ceiling and how would you calculate it? How much is actually exchanged in the market?

e) Draw what happens in the market for pipes as a result of c). What happens to the equilibrium price and quantity of pipes? Explain why with precise determinant.