Unit 2, Chapter 3
Mr. Maurer
AP Economics
Name: _______________________________
Date: _____________________
Chapter 3, Problem Set #2 – Supply and Demand
With Consumer and Producer Surplus and Price and Quantity Controls
1. On your own graph paper, draw a graph of the grapefruit market in equilibrium. Be sure to
identify equilibrium price and equilibrium quantity.
You should have an ordinary supply and demand diagram with proper labeling and dotted lines
showing equilibrium price and quantity.
a. On your graph show the effect of a successful marketing campaign by the citrus growers of
America. You should show a new demand curve (D2), shifted to the right of the original demand
curve. Directional arrow showing the shift is also needed. You must then add in dotted lines
showing the new market price and quantity after the marketing campaign.
b. On the same graph, show the effect of a severe frost in Florida that causes significant damage to
the grapefruit crop. You should show a new supply curve (S2), shifted to the left of the original
supply curve. Directional arrow showing the shift is also needed. You must then add in dotted lines
showing the new market price and quantity after the severe frost.
c. Explain the resulting change in price and quantity of the combined effects of events a and b.
The new price will be higher than the original price due to increased demand and decreased supply.
The change in quantity is indeterminate for those reasons.
2. The supply and demand schedules for Miley Cyrus t-shirts are given in this table:
Price Quantity
Quantity
Demanded Supplied a. Plot the demand and supply curves for Miley Cyrus t-shirts on
your own graph paper. Be sure to use a size and scale that will
$15
10
150
allow you to work with the numbers going forward.
13
30
130
11
50
110
b. Now complete your graph to show the market for Miley Cyrus
9
70
90
t-shirts in equilibrium.
7
90
70
5
110
50
c. Suppose that a fantastic performance at the VMA Awards
3
130
30
increases Miley’s popularity significantly. Demonstrate the
1
150
10
probable effect of this increased popularity on your graph.
d. Now suppose that, Miley, riding this crest of newfound popularity, decides she wants to see her
own face on every t-shirt in America, and lowers the price she charges t-shirt manufacturers for the
right to use her image. Demonstrate the effect of this on the graph.
On this graph, I used Qf and Pf to designate final
quantity and price. In this case, Pf is equal to Pe, but
that would not have to be the case. It only happened
because she demand curve and supply curve shifted
by the same amount.
e. Explain the combined effects of c and d on both
the price and quantity of Miley Cyrus t-shirts sold.
Increased demand and increased supply will lead to
increased quantity, but the change in price is
indeterminate.
Unit 2, Chapter 3
3. Draw a correctly labeled graph of the market for apartments in New York City in equilibrium.
a. On your graph demonstrate a price ceiling on rents imposed by the government. Be sure
to indicate the new price and quantity.
b. Shade in the area of deadweight loss resulting from the price ceiling.
c. Identify the resulting shortage of apartments on your graph.
4. Refer to the graph at left. What is the total value of consumer
surplus if the equilibrium price is $20?
½ x 60 x 200 = 6000
5. Refer to the graph at left. What is the total value of
producer surplus if the equilibrium price is $60?
½ x 40 x 50 = 1000
Unit 2, Chapter 3
6. Refer to the graph at left.
a. Which letter corresponds to the area of
consumer surplus? A
b. Which letter corresponds to the area of
producer surplus? B
c. What would happen to the area of consumer
surplus if equilibrium price rose to $4 because of a
decrease in supply? Explain.
Consumer surplus would decrease. The areas of
consumer surplus would now be the right triangle with
its base at $4 instead of $3. This is both because
consumers are paying a higher price and because the quantity of sales has decreased, both of which
decrease consumer surplus.
7. Draw a correctly labeled graph of the market for SUVs in equilibrium. Suppose that the
government, in an effort to improve fuel efficiency in America puts an effective quota on SUV
production. Indicate this with a dotted line on your graph. You do not have to identify the new
price, only the quantity. Finally, shade in the area of deadweight loss caused by the quota.
8. Refer to the graph at left for the following questions:
a. Assume that this market is at equilibrium at P2 and Q2.
i. Which combination of letters makes up consumer
surplus? A+B+C
ii. Which combination of letters make up producer
surplus? D+E+F
b. Now assume that an effective price ceiling is placed on the
sale of this product. As a result of the price ceiling, what is
the new price and quantity purchased? (You must choose
from the labels on the graph.) Price would have to be at P3
(remember, you have to choose one of the prices labeled on
the graph. Quantity purchased would now be Q1, because
that is all suppliers are willing to sell at that price.
c. After the price ceiling is imposed on the market, what letters show the area of deadweight loss
caused by the price ceiling? C + E
Unit 2, Chapter 3
d. What letters represent the area of consumer surplus after the price ceiling is imposed?
A+B+D
e. What letters represent the area of producer surplus after the price ceiling is imposed?
F
9. Draw a correctly labeled graph of the market for gasoline in equilibrium. Assume the equilibrium
price is $4.00 per gallon.
a. On your graph, clearly label the area of consumer surplus and the area of producer
surplus.
b. Now suppose the government the government imposes a price ceiling of $3 per gallon.
Indicate this on your graph.
c. Shade in the area of deadweight loss as a result of this price ceiling.
d. What happens to the area of producer surplus as the result of the price ceiling?
I’m not going to do the graph for this one. It’s a lot like the last graph. Producer surplus will
decrease due to the price ceiling.
10. Draw a correctly labeled diagram of the market for milk in equilibrium.
a. On your graph, label the area of consumer surplus and producer surplus.
b. Now indicate the effects of a government imposed price floor on the price of milk.
c. What happens to consumer surplus as the result of the price floor?
This graph from today’s PowerPoint shows it pretty well. Ask tomorrow if you have questions.
Unit 2, Chapter 3
11. The graph below shows the market for textbook at a major state university in equilibrium.
CS
PS
a. Identify the area of consumer surplus and producer surplus on the graph by labeling them cs and
ps.
b. Compute the dollar value of consumer surplus, producer surplus, and total surplus in this market.
(Remember how to calculate the areas of a triangle or a rectangle?)
Consumer surplus = ½ x 100 x 100 = 5,000
Producer surplus = ½ x 100 x 100 = 5,000
Total surplus = 5,000 + 5,000 = 10,000
c. Suppose the president of the university decides that the $200 equilibrium price of textbooks is
too high and imposes a price ceiling of $150. Show the effect of this price ceiling on the graph.
i. Identify the area of shortage on the graph.
ii. Calculate the amount of the shortage. Note, because you can know the slope of both
curves from looking at the diagram, you can precisely calculate quantity on either curve if you know
the price and vice versa.
We’ll look at this in class tomorrow. The key is to find the values you need by looking at the
slopes of the curves.
iii. Label both the new price (with the price ceiling in effect) and new quantity with
numbers on your graph.
d. Calculate the new values of consumer surplus, producer surplus, and total surplus.
e. Finally calculate the area of deadweight loss resulting from the price ceiling. How does the new
value of total surplus and deadweight loss relate to the original value for total surplus?