Suppose we model the market for temporary tattoos. There are 4 buyers and 4 sellers in a (more or less) competitive market.

Demand Schedule

Supply Schedule

Price

Jake

Chris

Tanner

Antwan

Price

Taylor

Shaina

Digger

Amelia

0.1

20

16

6

8

0.1

1

1

1

1

0.5

18

12

4

6

0.5

2

2

2

1

1

14

10

3

5

1

3

4

4

2

1.5

12

8

3

4

1.5

4

7

6

4

2

6

6

2

2

2

6

11

8

8

2.5

2

4

1

1

2.5

9

13

12

11

3

1

2

1

1

3

11

14

14

12

3.5

1

1

1

1

3.5

13

15

15

13

1. Copy and paste the data into Excel (or, do it by hand). Tabulate market demand and supply, plot these curves, and add a linear trend line for each. Make sure there is one figure that shows both supply and demand together.Give me a function that approximates the demand and supply trends thatyou plot.
2. Estimatethe equilibrium price and quantity in this market (hint: use the trend lines). Prices are in dollars $ and tattoos are in each.
3. What consumers appear to have the highest willingness to pay for temporary tattoos? Is there a consumer that seems to have a fairly inelastic demand for tattoos?
4. Calculate own price elasticity of demand for tattoos for when the price increases from $1 to $1.50 (hint: |e|=%Q/%P). Use the midpoint formula). Is market demand elastic, inelastic, or unit elastic?
5. If the advertising elasticity of demand is 3.4, what effect will a 1% change in ad spending have on quantity demanded in this market? Is demand ad sensitive?
6. This is your chance to be creative. Give me a quick story or scenario in which there might be anegative supply shockto the temporary tattoo market. What do you predict the effect to be on equilibrium price and quantity? Show in your figure (draw/sketch a new trend line in to illustrate).
7. What is a potential long-run condition brought about by this shock? As profits in this market trend upward after your shock, what do you expect to happen to the market structure in the long-run? Be specific (there are numerous correct answers).