ECO 202: Demand and supply

Principles of Microeconomics
Q1. According to the USA Today newspaper in March 2010:
“A frigid Florida winter is taking its toll on your sandwich. The sunshine state is the main U.S.source for fresh winter tomatoes, and its growers lost some 70 percent of their crop during January’s prolonged cold weather.The average wholesale price for a 25-pound box of tomatoes is now $30, up from $6.50 a year ago.Florida’s growers would normally ship about 25 million pounds of tomatoes a week; right now, they are shipping less than a quarter (8million).High demand has driven up prices and wholesalers are buying from Mexico. Based on that, some restaurants provided tomatoes only on request.”
a. Using the information above find the demand and supply curves in the market for winter tomatoes. (5 Marks)
b. Calculate the price elasticity of demand
for winter tomatoes as well as elasticity of supply using the midpoint method. (5
Marks)
Q2. Sub Mart Inc. needs to decide the
optimal price to charge and the optimal quantity to supply in the market. The
demand function of the product is given as QD=40-2P, while the supply function
of the product is given as QS=2P where P is the price, QD is quantity demanded,
and QS is quantity supplied. Solve the following demand function is given as:
QD=40-2P. Calculate the equilibrium price and quantity. (5Marks)
Q3.
Consider the demand for apples. If the prices of a substitute
good(bananas) increases and the price of a complement good (apple pie)
increases, can you tell for sure what will happen to the demand for apples? Why
or why not? Illustrate your answer with a graph.
Q4. The market for pizza has the following
demand and supply schedule (5 Marks)

Price

Quantity Demanded

Quantity Supplied

$4

135

26

$5

104

53

$6

81

81

$7

68

98

$8

53

110

$9

39

121

a. Graph
the demand and supply curves
b. What is the
equilibrium price and quantity in this market?
c. If
the actual price in this market is above the equilibrium price what would drive
the market towards the equilibrium?
d. If
the actual price in this market is below the equilibrium price what would drive
the market towards the equilibrium?

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