AB224 Unit 3 Assignment Problem 1 and 2

Unit 3 Assignment: Problem 1 and 2

Name: –

Course Number:– AB224

Section Number:– 03

Unit Number:– 3

Date:–

Problem 1:

Suppose that the supply schedule of Belgium Cocoa beans is as follows:

Suppose that Belgium cocoa beans can be sold only in Europe. The European demand schedule for Belgium cocoa beans is as follows:

The equilibrium price is $30 per pound, the quantity of cocoa from Belgium is 500 pounds.

• Below is the graph of the demand curve and the supply curve for Belgium cocoa beans. From the supply and demand schedules above, what are the equilibrium price and quantity of cocoa beans from Belgium?

Now suppose that Belgium cocoa beans can be sold in the U.S. The U.S. demand schedule for Belgium cocoa beans is as follows:

European consumers will consume 500 pounds of Belgium cocoa beans.

• What is the combined (total) demand schedule for Belgian cocoa beans that European and USA consumers buy?
• The combined (total) demand schedule for Belgian cocoa beans that European and USA consumers buy are 700 pounds.
• Below is the supply and demand graph that illustrates the new equilibrium price and quantity of cocoa beans from Belgium.
• From the supply schedule and the combined U.S. and European demand schedule, what will be the new price at which Belgium plantation owners can sell cocoa beans?
• The Belgium plantation owners can sell cocoa beans for $35 per pound.
• What price will be paid by European consumers?
• European consumers will pay $30 for Belgium cocoa beans per pound.
• What will be the quantity consumed by European consumers?

Problem 2

On Tuesday nights, a local restaurant has a kid’s meal special. Nina’s son, Braden likes the restaurant’s chicken nuggets, but Braden seems to be growing bigger every day and the kid’s meal is usually not enough. The restaurant does allow for additional purchase of chicken nugget servings. Nina’s willingness to pay for each serving is shown in the table below.

b. The following week, Nina and Braden are back at the restaurant again, but now the price of a serving of chicken nuggets is $4. By how much does his consumer surplus decrease compared to the previous week?

• a. If the price of an additional serving of chicken nuggets is $3, how many servings will Nina buy for Braden? How much consumer surplus does he receive?
• Nina will buy three servings of chicken nuggets for Braden. At $3 per serving, Braden will have a consumer surplus of two servings.

Bradens consumer surplus decreases by one serving of chicken nuggets compared to the previous week.

c. One week later, they return to the restaurant again. Nina discovers that the restaurant is offering an “all-you-can-eat” special for $12. How many chicken nugget servings will Braden eat, and how much consumer surplus does he receive now?

Braden, a growing child, will probably eat six servings of chicken nuggets. If he does eat six servings his consumer surplus would be four servings from the previous week and three servings from the first week.

d. Suppose you own the restaurant and Braden is a “typical” customer. What is the highest price you can charge for the “all-you-can-eat” special and still attract customers?

A “typical” customer could probably eat two to three servings of chicken nuggets. The highest price I would charge for an “all-you-can-eat” special would be $9, a price I feel would still attract customers and turn a profit.

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References:

Krugmen, Pl, & Wells, R. (2009) Microeconomics, Third Edition

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