Temple University
Department of Economics

Economics 92
Principles of Microeconomics, Honors

Homework 2
Supply, Demand, and Elasticity

Name

A. Caraway Seeds

East Egg and West Egg are two independent island economies separated by Baker Channel, a waterway uncrossable by boat or airplane due to treacherous weather conditions.  Caraway seeds are produced and sold under conditions of perfect competition on both islands.  The supply and demand schedules for the two markets are shown below.  The Q's are measured in pounds and P is price per pound.

  East Egg West Egg
Price Quantity
Supplied		 Quantity
Demanded		 Quantity
Supplied		 Quantity
Demanded
1 20 50 60 150
2 40 40 80 140
3 60 30 100 130
4 80 20 120 120
5 100 10 140 110

1.  What is the equilibrium price in East Egg?

2.  What is the equilibrium quantity in West Egg?

3.  What is the slope of the West Egg demand curve?

The Myrtle Wilson Bridge is now built between the two islands making it costless to transport seeds from one island to the other (and thus creating a unified market).

4.  What will be the new equilibrium price in East Egg?

5.  What will be the new equilibrium quantity consumed in West Egg?

6.  What will be the new equilibrium quantity produced in West Egg?

B. Gopher Wood

7. Preliminary research on the market for gopher wood in Ararat indicates that it is perfectly competitive with the following supply and demand relationships (Check the appropriate radio button for purposes of identifying the curves):

Q = 8-(2/3)P  Supply  Demand

Q = (4/3)P-4  Supply  Demand

8. Solving the equations for equilibrium price and quantity yields the following results (fill in the blanks)

Price

Quantity

9.  What is the elasticity of demand at the equilibrium?

PictureC. Runcible Spoons

The market for runcible spoons in a certain economy is perfectly competitive. The demand and supply functions are as follows:

Demand:  Q = 500 - 5P

Supply:    Q = 5P

10. Solve for the equilibrium price and quantity:

Price

Quantity

An excise tax of $t per unit is imposed by the government on each spoon sold.  This will cause the price paid by consumers (demanders), Pd, to exceed the price received by suppliers, Ps, by the amount of the tax. That is, Pd= Ps+ t .

11. If t = $10, what is the equilibrium quantity?

12. What price is paid by consumers at the new equilibrium?

13. What price is received by sellers?