2. (5 points) Current, or at least in the very recent past, we have had shortages of items like toilet paper and disinfecting wipes and hand sanitizer.
(a) Does a shortage imply that the price of the item is above or below the equilibrium price? Please give an explanation.
(b) What happened to demand or supply that led to the shortage? Please explain.
3. (5 points) Consider a market characterized by the following inverse demand and supply functions: PX = 10 − 2QX and PX = 2 + 2QX.
(a) Calculate the equilibrium price and equilibrium quantity. Please show your calculations.
(b) Calculate the consumer surplus and show your calculations.
(c) Calculate the producer surplus and show your calculations.
It might help if after you have computer the answer for (a), you draw a graph, with the demand and the supply curves, and then label the y-intercept of the demand curve, the y-intercept of the supply curve and the equilibrium price and quantity, and then calculate the consumer and producer surplus.
4. (5 points) Rapel valley in Chile is renowned for its ability to produce high quality wine at a fraction of the cost of many other vineyards around the world. Rapel Valley produces over 20 million bottles of wine annually, of which 5 million are exported to the United States.. Each bottle entering the United States is subject to a $0.50 per bottle excise tax, which generates about $2.5 million in tax revenues. Strong weather patterns have caused unusually cold temperatures in the grape growing region in Chile, hurting the grape crop from which the wine is produced.
(a) How do the low temperatures affect the price of Chilean wine? Please explain.
(b) Assuming that the weather does not affect California’s grape (and wine) producing region, how will the cold weather in Chile impact the market for California wine? You may assume that Chilean Wine and California wine are substitutes for each other. Please give an explanation.