simple 4 questions of Principles of Economics

Question 1 

Suppose that unexpected low temperatures in the major wine grape producing regions of Tasmania caused a decline in both the supply and quality of grapes used for producing premium Tasmanian wines.   Use a supply and demand analysis to predict what effect this will have on the market for premium Tasmanian wines.  You must include a detailed graphical analysis as part of your solution.  Carefully label and explain your diagram.      

Question 2  

The market for wheat has the following demand and supply schedules:  

Price ($/tonne) Quantity Demand(100tonnes) Quantity Supplied(100tonnes)
4 135 26
5 104 53
6 81 81
7 68 98
8 53 110
9 39 121
100 0 133

a) What is the equilibrium price and quantity in this market?

b) Suppose a price floor was implemented in this market equal to $8/tonne.  Calculate the excess demand or excess supply created by the price floor. 

c) Calculate the reduction in consumer surplus caused by the price floor  

Question 3 

Suppose that there are four consumers willing to pay the following amounts for haircuts:  

Dave: $14; Charlie $4; Alice: $16; Kitty: $10.  

Suppose that there are four barbers with the following costs for cutting hair:  

Firm A: $6; Firm B: $12; Firm C: $8; Firm D: $4.  

In addition, assume that each barber has the capacity to produce only one haircut.  

a) How many haircuts should be given to maximize efficiency?  Explain. 

b) Which Barbers should cut hair?  Explain. 

c) How large is the maximum possible total surplus?  

Question 4  

Suppose that you are thinking about starting a fishing business.  The fixed cost of the business is the cost of a fishing rod, which is $15. (Note: the rod cannot be used for anything except fishing.) The variable costs are bait, which is $1 per fish caught and your time.  The opportunity cost of your time is $10 per hour.  The table shows the relationship between hours spent fishing and number of fish caught.  

Hours Number of Fish Caught
1 10
2 18
3 24
4 28
5 30


a) Suppose that you can sell each fish for $5.  How many fish will you catch to maximise profit? Explain.  

b) Suppose that you purchase your rod and begin fishing (the resell value of the fishing rod is zero).  Suddenly, the price of fish drops to $2.10 each.  How many fish will you catch to maximise profits?  Explain.