Activities and Definitions
Qs = 1800 + 240P Qd = 3550 - 266P
◦ Price is in dollars per bushel◦ Quantity is in millions of bushels per year
Find the equilibrium price and quantity Price Elasticities of Demand and Supply
◦ EDp = (ΔQD%)/(ΔP%) = (P/Q)(ΔQD/ΔP)
◦ Esp = (ΔQS%)/(ΔP%) = (P/Q)(ΔQS/ΔP)
◦ Calculate these elasticities Calculate Consumer and Producer Surplus
Qs = 1800 + 240P Qd = 3550 - 266P Suppose a tax of $0.50 per bushel is levied
on wheat produced by farmers in the U.S.◦ Find the new price and quantity◦ Calculate the tax revenue and Economic Surplus
Suppose a price floor of $5.00 per bushel is imposed on the wheat market (w/o the tax)◦ Find the quantities supplied and demanded, the
surplus quantity (if any), and Economic Surplus under the price floor
QS = 15.90 + 0.72PG + 0.05PO QD = 0.02 – 1.8PG + 0.69PO
◦ Q is in Tcf, PG in $/mcf, and PO = $50/barrel
◦ Verify that PG = $6.40, Q = 23Tcf in equilibrium Suppose a price ceiling of $3.00/mcf is
imposed◦ Calculate the quantities supplied and demanded at
the ceiling price◦ Is there a surpus? A shortage?◦ Calculate Economic Surplus before and after the
ceiling
Natural Gas Market◦ QS = 15.90 + 0.72PG + 0.05PO
◦ QD = 0.02 – 1.8PG + 0.69PO
◦ Equilibrium PG = $6.40, Q = 23 Tcf; PO = $50 Suppose the price of oil increases to $80
per barrel◦ Find the new equilibrium price and quantity
World Crude Oil Market QS = 32 + 0.04P QD = 35.3 – 0.03P
◦ P is in $/barrel and Q is in billions of barrels (bb)◦ Verify P = $47.14 in equilibrium and Q = 33.89
Suppose OPEC reduces its supply of crude oil by 3 bb/year◦ Find the new equilibrium price and quantity