Question: 1. Suppose that the demand curve for coffee is Q = 10 - P and the supply curve is Q = 2P - 2. Draw the supply and demand curves below.

2. What is the equilibrium price and quantity?

3. Suppose the government implemented a price floor at $3 per cup of coffee. Then

a. The price is $3, the quantity demanded is 7 cups of coffee and 4 cups are supplied, so there is a shortage.

b. The price is $3, the quantity demanded is 4 cups of coffee and 7 cups are supplied, so there is a surplus.

c. The price is $4 and the quantity demand is 6 and the quantity supplied is 6.

4. What would happen if the government implemented a price ceiling at $3?

a. The price is $3, the quantity demanded is 7 cups of coffee and 4 cups are supplied, so there is a shortage.

b. The price is $3, the quantity demanded is 4 cups of coffee and 7 cups are supplied, so there is a surplus.

c. The price is $4 and the quantity demand is 6 and the quantity supplied is 6.

5. What if the government imposed a $1 tax per cup of coffee?

a. Consumers pay $4.67 for each cup of coffee, sellers receive $3.67, and 5.33 cups of coffee are consumed.

b. Consumers pay $5 for each cup of coffee, sellers receive $4, and 6 cups of coffee are consumed.

c. Consumers pay $3.33 for each cup of coffee, sellers receive $4.33, and 6.67 cups of coffee are consumed.

5. Suppose that the market illustrated by the graph on the right is in equilibrium, and the price is $8. Use the graph to answer the following questions.

$10 $8 $7 50 54 56

What is the consumer surplus associated with the 50th unit of consumption?

Shade the area that represents the total consumer surplus in this market when the price is $8.

Shade the area that represents the total consumer surplus in this market when the price is $10.

Shade the area that represents the deadweight loss in this market when the price is $10.

$10 $8 $7 50 54 56