Tutoral_6_solutions.doc

An improvement in technology lowers the cost of producing DVD recorders. Explain what happens to consumer surplus in the market for DVD recorders. Illustrate your answers with diagrams. Suppose the demand for French bread rises. Explain what happens to producer surplus in the market for French bread. Explain what happens to producer surplus in the market for flour. Illustrate your answers with diagrams. Regis is hungry for a snack. Here is the value he places on a cupcake: Value of 1st cupcake $5 Value of 2nd cupcake $4 Value of 3rd cupcake $3 Value of 4th cupcake $2 From this schedule, derive Regis’ demand schedule. Graph his demand curve for cupcakes. If the price of a cupcake is $3.50, how many cupcakes does Regis buy? How much consumer surplus does Regis get from his purchase? Show his consumer surplus in your graph. If the price falls to $2.50, how does quantity demanded change? How does Regis’ consumer surplus change? Show these changes in your graph. The cost of producing stereo systems has fallen over the past several decades. Let’s consider some implications of this fact. Draw a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of stereo sold. In your diagram, show what happens to consumer surplus and producer surplus. Suppose the supply of stereos is very elastic. Who benefits most from falling production costs – consumers or producers of stereos? The supply and demand for ice cream cones are described by the following equations: Supply: QS = -30 + 38P Demand: QD = 90 – 2P Q is the quantity of ice cream cones per day, and P is the price per cone (in dollars). Graph the supply curve and the demand curve. What is the equilibrium price and quantity? Calculate consumer surplus, producer surplus, and total surplus at the equilibrium. If a dictator who hated ice cream were to outlaw the sale of ice cream cones, who would bear the larger burden – the buyers or the sellers of ice cream cones? If there is an