The demand and supply schedule for ice cream is as follows: Derive a graph from

Question

The demand and supply schedule for ice cream is as follows: Derive a graph from the above demand and supply schedules. What arc the equilibrium price and equilibrium quantity in the ice cream market. Confirm your answer by graphing the demand and supply curves. What is the surplus or shortage at each price? The government has decided that the free market price of cheese is too low. suppose the government imposes a binding price floor in the cheese market draw a demand-and supply diagram to show the effect of this policy on the prince of cheese and the quantity of cheese sold. Is there a shortage or surplus of cheese? Producers of cheese complain that the prince floor has reduced their total revenue. Is this possible? Explain. In response to the producers' complaints, the government agrees to buy all all the surplus cheese at the at the prince floor. Compared to the basic prince floor, who benefits from this policy? Who looses? Indicate whether the following activities create a positive or negative externality. Late night construction begins on a new bridge, as a result traffic is re-routed past your house while construction takes place. An excavating company polluted a local stream with acid rock.

Explanation / Answer

1.

a.

b.

C.

Price                (Per Quart)

Quantity Demanded (Quarts)

Quantity Supplied (Quarts)

Shortage / Surplus

Comments

2

1000

300

700

Shortage

3

800

450

350

Shortage

4

600

600

0

neither shortage nor surplus

5

400

750

-350

Surplus

6

200

900

-700

Surplus

Shortage is a condition in the market when demand is higher than supply. Surplus is a condition in the market when demand is less than the supply.

If difference in quantity demanded and quantity supplied is positive then there is shortage. It comes with positive sign.

If difference in quantity demanded and quantity supplied is negative then there is surplus. It comes with negative sign.

Price                (Per Quart) Quantity Demanded (Quarts) Quantity Supplied (Quarts) 2 1000 300 3 800 450 4 600 600 5 400 750 6 200 900

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