1 Principles of Microeconomics – Econ1014 Week 4 Homework Assignment (non-mandatory) Demand and Supply Please complete this and turn it in to the TA at the classroom door at the start of class on Wednesday, September 24th if you wish it to be graded for extra credit. It will be available to be picked up at the econhelpdesk and you can review it with a TA by Tuesday of the following week. Your name and pawprint should be written legibly at the top of each page and all submitted pages should be stapled together. 1. Modeling the Market for Pizza Suppose you are an economic analyst for the restaurant industry and you are given the task of modeling the market for pizza in the City of Columbia. You perform a survey of potential pizza consumers and of potential pizza producers and then put this information together to determine not only the local demand and supply, but also to predict the market equilibrium and to predict how the market would react to price increases and decreases. a. Suppose the following information comes from a survey of 10 potential pizza consumers. You believe each person surveyed represents a particular type of consumer so that the demand information for each of the 10 people surveyed represents 10,000 potential pizza consumers in town. Use this information to derive the local market demand for pizza. Fill in the figures in the last column of this table and plot the market demand curve on the following graph; be sure to label all axis and curves. (Note: the market demand curve will not be a constant slope straight line. Plot the points for each price and connect each plotted point with a straight line.) Survey Question: How many pizzas would you buy in a week if the price were…? Surveyed person 1 Surveyed person 2 Surveyed person 3 Surveyed person 4 Surveyed person 5 Surveyed person 6 $4 3 3 1 2 2 2 $8 2 3 0 2 2 2 $12 2 2 0 2 2 2 $16 1 2 0 1 2 2 $20 1 2 0 1 2 2 $24 1 2 0 1 1 1 $28 0 1 0 1 1 1 $32 0 1 0 1 1 1 $36 0 1 0 1 1 1 $40 0 1 0 1 0 12 Survey Question: How many pizzas would you buy in a week if the price were…? Surveyed person 7 Surveyed person 8 Surveyed person 9 Surveyed person 10 Market Demand (for all 100,000 consumers) $4 2 4 1 3 230,000 $8 2 3 1 3 200,000 $12 1 3 1 2 170,000 $16 1 3 1 2 150,000 $20 0 2 1 2 130,000 $24 0 2 1 2 110,000 $28 0 1 1 1 70,000 $32 0 1 0 1 60,000 $36 0 0 0 1 50,000 $40 0 0 0 1 40,000 04812162024283236400 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230Price per pizza in dollars Quantity of pizza in 1000’s Market Supply Market Demand Pe= Qe=3 b. Suppose the following information comes from your survey of the only 6 potential pizza suppliers in town. Use this information to find the local market supply of pizza. Fill in the figures in the last column of this table and plot the market supply curve on the graph above with your market demand curve; be sure to label all axis and curves. Survey Question: How many pizzas would you sell in a week if the price were…? Seller 1 Seller 2 Seller 3 Seller 4 Seller 5 Seller 6 Market Supply (for all 6 sellers in town) $4 2,000 4,000 1,000 3,000 3,000 7,000 20,000 $8 7,000 10,000 8,000 14,000 4,000 11,000 54,000 $12 15,000 15,000 10,000 21,000 5,000 14,000 80,000 $16 18,000 25,000 12,000 27,000 6,000 17,000 105,000 $20 20,000 30,000 18,000 34,000 7,000 21,000 130,000 $24 22,000 35,000 24,000 35,000 8,000 22,000 146,000 $28 23,000 38,000 29,000 37,000 9,000 24,000 160,000 $32 25,000 43,000 33,000 39,000 10,000 25,000 175,000 $36 26,000 45,000 35,000 40,000 11,000 26,000 183,000 $40 28,000 47,000 36,000 43,000 12,000 27,000 193,000 c. What would be your prediction of the market equilibrium price of pizza and the equilibrium quantity of pizza bought and sold. Show this on your graph by labeling them Pe (for equilibrium price) and Qe (for equilibrium quantity bought and sold). Pe=$20 Qe=130,000 d. What would be your prediction for this market if sellers try to charge a price of $12 per pizza? How many pizzas will local consumers want to buy (Qd), how many pizzas will local sellers want to sell (Qs) and will the market still be in equilibrium? If not, what will be the outcome and how will the market try to get back to equilibrium? Qd=170,000 pizzas Qs=80,000 pizzas XS demand=90,000 pizzas Pizza price will be bid up, this will reduce Qd and increase Qs so that the XS demand shrinks. This process will continue until price rises to the equilibrium price of $20 and there is no longer any XS demand.4 e. What would be your prediction for this market if sellers try to charge a price of $32 per pizza? How many pizzas will local consumers want to buy (Qd), how many pizzas will local sellers want to sell (Qs) and will the market still be in equilibrium? If not, what will be the outcome and how will the market try to get back to equilibrium? Qd=60,000 pizzas Qs=175,000 pizzas XS supply=115,000 pizzas Pizza price will be bid down, this will increase Qd and decrease Qs so that the XS supply shrinks. This process will continue until price falls to the equilibrium price of $20 and there is no longer any XS