ARE 120 University of California Annual Supply and Demand for California Worksheet Answer the attached 6 homework questions. Answers should be clearly expl

ARE 120 University of California Annual Supply and Demand for California Worksheet Answer the attached 6 homework questions. Answers should be clearly explainedIt should be at least 2 pages University of California, Davis
Agricultural Policy (ARE 120), Spring 2020
Homework #1 – Due 10:00 a.m. (before class) Thursday April 9, 2020
1.
Many places have policies to protect the poor from high prices of basic necessities such as
food and housing. Sometimes the government fixes a maximum price that can be charged
for such goods.
a. Draw a supply and demand diagram to illustrate the effects when the government
passes a law that fixes a maximum price for bread (be sure to label the axes and curves
on your diagram carefully and completely).
b. What are the likely economic effects of this policy?
c. Who benefits and who loses?
d. Can you suggest a more effective nutrition policy?
2.
Suppose the annual supply and demand for California iceberg lettuce are characterized by
Demand:
QD = 10 – 0.1 P ;
Supply:
P = 20 + 10 QS
Quantities are in billions of heads of lettuce per year, and prices are in cents per head. For
the competitive equilibrium, label the following elements clearly on a supply and demand
diagram, and calculate each element (pay attention to units for prices, quantities, and
values). Include your answers in the appropriate place on the attached table:
Quantity of iceberg lettuce sold
Price paid by consumers
Price received by producers
Total producer revenue
Consumer surplus
Producer surplus
Total economic surplus
Elasticity of demand
Elasticity of supply
….continues over
3.
We wish to analyze the economic effects of two changes in the market relative to the
equilibrium represented in question 2:
a. An exotic pest destroys a large portion of the romaine lettuce crop, raising its price
(romaine lettuce is a substitute for iceberg lettuce).
b. An excellent season results in a bumper crop of iceberg lettuce.
Draw a supply and demand model for iceberg lettuce to represent each of these two
changes, and illustrate the nature of the adjustment to the market equilibrium for iceberg
lettuce (make sure you label the axes and curves carefully and clearly to distinguish the
“before” and “after” positions of the curves and the equilibrium prices and quantities).
In the attached table indicate (with “+” for increase, “–” for decrease, and “?” for uncertain
the direction of change in each of the following variables measured in question 2 in the
model of the iceberg lettuce market (do not calculate any numbers for this part):
•
•
•
•
•
•
•
Quantity of iceberg lettuce sold
Price paid by consumers
Price received by producers
Total producer revenue
Producer surplus
Consumer surplus
Total economic surplus
4.
Return to the base case in question 2, and consider the effects of an excise tax of 5 cents
per head of iceberg lettuce, collected from producers. Draw a new supply and demand
diagram to illustrate the effects of the tax, and recalculate each of the variables listed in
question 2. In addition, calculate the tax revenue raised. Report your results in the table.
Describe the effects on welfare of consumers and producers from introducing this tax.
5.
Suppose, as an alternative to the excise tax, a sales tax of 5 cents per head of lettuce is
collected from buyers. Report the effects in the table. Compare the producer, consumer,
taxpayer, and total welfare effects of the sales tax and the excise tax from question 4. If it
helps, draw a supply and demand diagram to illustrate your answer.
6.
Identify five important events in the history of U.S. agricultural policy and, for each of your
five events, say briefly why it was important—no more than 20 words per event. Penalties
will be imposed for excessively long answers.
Summary of Question 2 to 5 Results
Q
Question/Scenario
(billion heads
per year)
Consumer
Price
(PC)
Producer
Price
(PP)
(cents per head)
Total
Revenue
(TR)
Consumer
Surplus
(CS)
Taxpayer
Surplus
(TS)
Total (Net)
Surplus
(NS)
Demand
Elasticity
h
Supply
Elasticity
e
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
Not
Applicable
(billions of dollars per year)
Not
applicable
2. Competitive Equilibrium
3a. Pest Outbreak in
Romaine Lettuce
Producer
Surplus
(PS)
Not
Applicable
Not
Applicable
(Effects in iceberg lettuce
market only–see above)
3b. Bumper Iceberg Crop
4. Excise Tax
5. Sales Tax
Not
Applicable

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