Sample Exam 2 Questions
|* References to turkey should be replaced with pork.|
42. Hamburger market.
a) The demand curve will have "four steps" and the supply curve will have "four steps."
b) P = $4 and Q = 8
c) CS = $26 and PS = $18, therefore total social welfare = $44.
d) The market had one too many trades, 9 instead of the predicted 8. Consequently, the total profits generated by the market, $38, is less than the potential profit of $44. In other words, there is a "missing" $6 of profits. The missing profit can be seen by examining the trades that took place. In trade #4, a seller with a $5 cost was able to make a trade, even though the market diagram suggests that they shouldn't be trading in equilibrium (only the $1 and $3 sellers should be trading). On the buyer side, there is one $9 buyer missing from the trades. Also, two $4 buyers made a trade when only one of them should have. If the $9 buyer had been able to make a trade instead of one of the extra $4 buyers, then an extra $5 of profit could have been generated. If the remaining $4 buyer was matched up with the $5 seller, then there would have been a loss of $1 in profit from that transaction. Thus, the missing $6 of profit is due to the wrong buyer ($4 buyer took the place of the $9 buyer) and an extra low value buyer (the other $4 buyer) matching up with a high cost seller (the $5 seller).
e) Qd = 4 and Qs = 14. This results in a surplus of 10 hamburgers.