1. Activities and Definitions

2.  Q s = 1800 + 240P  Q d = 3550 - 266P ◦ Price is in dollars per bushel ◦ Quantity is in millions of bushels per year  Find the equilibrium price and quantity  Price Elasticities of Demand and Supply ◦ E D p = (ΔQ D %)/(ΔP%) = (P/Q)(ΔQ D /ΔP) ◦ E s p = (ΔQ S %)/(ΔP%) = (P/Q)(ΔQ S /ΔP) ◦ Calculate these elasticities  Calculate Consumer and Producer Surplus

3.  Q s = 1800 + 240P  Q d = 3550 - 266P  Suppose a tax of $0.50 per bushel is levied on wheat produced by farmers in the U.S. ◦ Find the new price and quantity ◦ Calculate the tax revenue and Economic Surplus  Suppose a price floor of $5.00 per bushel is imposed on the wheat market (w/o the tax) ◦ Find the quantities supplied and demanded, the surplus quantity (if any), and Economic Surplus under the price floor

4.  Q S = 15.90 + 0.72P G + 0.05P O  Q D = 0.02 – 1.8P G + 0.69P O ◦ Q is in Tcf, P G in $/mcf, and P O = $50/barrel ◦ Verify that P G = $6.40, Q = 23Tcf in equilibrium  Suppose a price ceiling of $3.00/mcf is imposed ◦ Calculate the quantities supplied and demanded at the ceiling price ◦ Is there a surpus? A shortage? ◦ Calculate Economic Surplus before and after the ceiling

5.  Natural Gas Market ◦ Q S = 15.90 + 0.72P G + 0.05P O ◦ Q D = 0.02 – 1.8P G + 0.69P O ◦ Equilibrium P G = $6.40, Q = 23 Tcf; P O = $50  Suppose the price of oil increases to $80 per barrel ◦ Find the new equilibrium price and quantity

6.  World Crude Oil Market  Q S = 32 + 0.04P  Q D = 35.3 – 0.03P ◦ P is in $/barrel and Q is in billions of barrels (bb) ◦ Verify P = $47.14 in equilibrium and Q = 33.89  Suppose OPEC reduces its supply of crude oil by 3 bb/year ◦ Find the new equilibrium price and quantity