Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: B. Supply and Demand: Bubble-Tea Drinks Near Crony Capitalism University
B. Supply and Demand: (20 minutes—if you are not through after 20 minutes, skip to the next question): In the central part of the state of Euphoria there is an enormous suburban sprawl, somewhere in the middle of which is Tall Stick, home of Crony Capitalism University. [Founded by a nineteenth-century Robber Baron who told his British investors that their money was safe in his enterprises because he was not just a financier but also a big wheel in the dominant political party and an ex-governor of the state of Euphoria. Ha, ha! Silly British investors! What they thought would be their profits became instead the core endowment of CCU.] We will look at the daily market for bubble-tea drinks near CCU.
Suppose that the quantity of bubble-tea drinks demanded and the quantity of bubble-tea drinks supplied daily are given by the equations:
- Demand: P = -10 + Q/800
- Supply: P = 20 - Q/1600
where P is the price of a bubble-tea drink in dollars:
- What is the market equilibrium price?
- What is the market equilibrium quantity?
- What is the producer surplus?
- What is the consumer surplus?
- Explain, intuitively, why the distribution of producer and consumer surplus is what it is.
- What would the distribution of consumer and producer surplus be if the supply curve equation were: {IF (10>P) THEN (Q=0)} AND {IF (P≥10) THEN (Q=16000)?
