Download Additional Problem 4: Market Analysis Answers

Additional Problem 4:
Market Analysis (Answer Key)
The demand for cantaloupe melons is P = 120 - 3 Qd, and the supply is P = 5 QS, where
P is the price per pound (in cents) of a cantaloupe, Qd is the quantity demanded per year,
and Qs the number supplied (both in millions of pounds).
(a)
What is the equilibrium price per pound of a cantaloupe? What is the equilibrium
quantity of cantaloupes produced? Show your work graphically, numerically, and
explain.
P = 120 - 3Qd
P = 5Qs
P
120
5Qs = 120 - 3Qd
5Q = 120 - 3Q
8Q = 120
QE = 120 / 8 = 15
P = 5Qs
-3
5
1
1
PE = 5 x 15 = $75
$75 = PE
Market Equilibrium:
Qd = Qs No shortages, no surpluses
Horizontal D intercept
0 = 120 - 3Q
3Q = 120
Q = 40
(b)
P = 120 - 3Qd
0
QE
15
40
Q
Indicate whether each of the following will shift the demand curve for cantaloupe
melons to the left, to the right, or have no effect on it:
(1)
a report by the U.S. Surgeon-General that cantaloupes cause cancer.
P



D1
D0
0
Q
Decrease in tastes and preferences for cantaloupes.
2
(2)
an increase in the price of honeydew melons.
P



D1
D0
0
Q
If honeydews are a substitute, the demand for cantaloupes increases.
If honeydews and cantaloupes are not related  not a substitute, then no
change in demand for cantaloupes.
(3)
an increase in per capita income.
P



D1
D0
0
Q
If cantaloupes are a superior/normal good  increase in demand.
No change in cantaloupe demand if cantaloupes are a neutral good.
Decrease in demand for cantaloupes if cantaloupes are an inferior good.
(4)
an increase in the wages of workers picking cantaloupes.
P



D1
D0
0
Q
Higher wages  Increase income  Increase in demand if cantaloupes
are a superior/normal good.