ECON 401
Fall 2013
Homework Set #1
This assignment is due at the beginning of class on Tuesday, October 8.
1. Suppose that the market demand and supply curves for corn are represented by
the following equations:
𝑄 𝐷 = 600 − 60𝑃
𝑄 𝑆 = −30 + 30𝑃
where 𝑄 𝐷 is the quantity demanded (in millions of bushels), 𝑄 𝑆 is the quantity
supplied, and P is the price (in dollars per bushel). Suppose the current market
price of corn is $5 per bushel.
a) What is the quantity of corn demanded? Quantity supplied? Quantity bought?
Show your work for answering these questions and provide a graphical
representation of the solutions.
b) Describe the situation in the market. Is there excess demand or excess
supply? How large is it?
c) What would you expect to happen to the market price of corn? The quantity of
corn bought? Explain.
2. Suppose the demand for movie tickets in a small town is described by the
following equation:
Q = 800 – 50P
where Q is the quantity of tickets demanded per day, and P is the average price
of a ticket.
a) What is the price elasticity of demand for movie tickets when the price is $8
per ticket? At this point, is the demand price elastic?
b) What is the price elasticity of demand for movie tickets when the price is $5
per ticket? At this point, is the demand price elastic?
c) Without further calculations, can you tell whether the demand for movie
tickets is elastic or inelastic when the price is $10?
d) Provide a graphical representation of your answer to a), b) and c).
3. Briefly discuss what is meant by consumer surplus and producer surplus.
4. Explain and graphically depict the impact of a price ceiling.
Points: Q1 =3 points; Q2=4 points; Q3=2; Q4=1 point; TOTAL=10 points