NAME:_________________________________________
ECNS 105
Problem Set 7
Turn this problem set in at the end of class.
Show all work for full credit.
1. The Denver Broncos stadium has a large number of different vendors who sell soda and hotdogs
to the fans. The market equilibrium price for a soda and a hot dog is $10. Use the diagram below to
answer parts A through E.
Denver Broncos Stadium Venders
$20.00
$17.50
$15.00
Price
$12.50
$10.00
$7.50
$5.00
$2.50
$0.00
0
100
150
200
250
300
Q Soda and Hot Dogs
Demand
Supply
A. At the equilibrium price of $10, what is the producer surplus? Consumer surplus?
350
B. At equilibrium, what is the vendor’s total revenue?
C. Suppose fans aren’t happy having to pay such a high price for their refreshments. In response,
Pat Bolan (the owner of the team) sets a price ceiling at $5.00 determining that to be a fair
price for consumers. What impact does this have to CS? PS? Who benefits from this? Who is
worse off?
D. Now suppose vendors aren’t making enough money on soda and hot dogs and are about to go
out of business. In response, they collectively decided to set a price floor at $15. What impact
does this have to CS? PS? Who benefits from this? Who is worse off?
E. A new vendor who sells pizza and soda combo meals for $5.00 just open up shop next to the
hot dog vendor. Assuming Pizza is a substitute for hot dogs, what might a new equilibrium
price and quantity in the market be?
a. $15.00 and 350 Meals.
b. $15.00 and 150 Meals.
c. $5.00 and 350 Meals.
d. $5.00 and 150 Meals.
2. The merchandise store at Sports Authority Field sells both jerseys and hats. Jerseys and hats are
perfect consumption compliments. Consumers value both products equally. State and illustrate with a
supply and demand diagram, the effect of the following situations on price and quantity in the Jersey
market, ceteris paribus.
A. A storm hits the southern U.S. and wipes out half of the cotton supply.
(Cotton is an input to Hats)
B. The Price of Bandanas (a substitute good to hats) decreases.
C. Ticket prices to attend Broncos games decrease, causing more people to visit the merchandise
store. At the same time, Nike raises the price of their hats.
D. Your income increases and jerseys and hats are normal good for you since you're a die-hard
fan.
3. Peyton Manning can either produce TD's or DirectTV commercials. His opportunity cost is
constant and he can only produce 10 TD's or 3 DirectTV commercials a week. Using this,
answer A through C.
A. What is the opportunity cost of producing one TD?
B. What is the opportunity cost of producing one Commercial?
C. Suppose that his brother Eli comes to town and he can also produce TD's or DirectTV
commercials. He can produce 8 TD's or 4 commercials per week. According to comparative
advantage, which brother should produce TD's? Commercials? Briefly explain.