Department of Agricultural and Resource Economics ARE 1110
University of Connecticut Summer 2014
POPULATION, FOOD, AND THE ENVIRONMENT
HOMEWORK ASSIGNMENT
Due Date: July 11, 2014. If possible, please type your answers. Graphs/diagrams may be
drawn in Microsoft Word or other software (such as Google Docs). Handwritten answers are
also acceptable – you may submit a scanned version (saved as a pdf file).
1. (a) What is a market demand curve and why is it usually downward sloping?
(b) What is a market supply curve and why is it usually upward sloping?
(c) Explain the concept of marginal cost. How does the marginal cost of a good relate to its
industry supply curve (under perfect competition)?
2. The following Table indicates the quantities demanded and supplied of Good X at different
prices.
Price of Good X Quantity Supplied Quantity Demanded
10 1 10
30 3 6
50 5 2
(a) Use the above information to plot the demand and supply curves for Good X on a graph,
with the price and quantity axes labeled clearly. The approximate scales for the axes should be
such that 10 units are represented by one inch on the price axis, while 2 units are represented by
one inch on the quantity axis.
(b) Based on your graph in 2(a), what are the (approximate) values of equilibrium price and
quantity? Indicate these values on the graph. This version of the graph will need to be
reproduced and modified to answer the remaining parts of the question.
(c) What would happen in this market if the government tried to set the price of X at 10 or at
50? Explain with the help of a reproduction of your graph for 2(b).
(d) In what direction(s) would equilibrium price and quantity move if there is an increase in
average income of the population? Use a suitably modified version of your graph for 2(b) to
illustrate and explain the answers.
(e) In what direction(s) would equilibrium price and quantity move if the cost of producing X
decreases? Use a suitably modified version of your graph for 2(b) to illustrate and explain the
answers.
3. The market for many commodities is seasonal. Winter jackets and plums are two examples.
Jackets are sold mostly in the winter season, while plums are sold mainly in the summer months.
However, the price movements of these two products are quite different. Jackets are priced high
during their peak season, whereas plums decrease in price during their peak season. Using a
separate demand-supply diagram for each of the above markets, explain why we observe this
different price behavior for the two commodities.
4. Solar panels can be used to power homes and companies. These panels are expensive to
install, but their use may help significantly reduce carbon dioxide emissions (from electricity
generation), thereby contributing to the reduction of global warming.
(a) Draw a clearly labeled demand-supply diagram to illustrate the free market equilibrium for
solar panels. This diagram will need to be reproduced and modified to answer 4(c) and 4(d).
(b) Use the concept of externalities to argue that the free market will not produce the socially
desirable quantity of solar panels.
(c) In view of your answer to 4(b), use a suitably modified version of your demand-supply
diagram from 4(a) to help compare the free market and the socially desirable quantities of solar
panels, and then provide a statement of this comparison in words.
(d) What kind of government policy could be used to improve upon the free market outcome in
4(a)? Illustrate the socially desirable level of this policy in a reproduction of your diagram for
4(c).
