The Stoogeville Market for Fresh Coffee, Worksheet for Unit 3:
The Situation: In this particular market for coffee, there are only three consumers and three producers.
Your Assignment: Complete the tables below by printing this page and then calculating total market demand and total market supply. It is strongly suggested that you take some graph paper and plot demand and supply curves for this market. It is not absolutely necessary to plot the graphs to answer the questions, but it is a very useful exercise to make sure you understand the concepts.
The Market for Coffee – The Demand Side
Quantities of Coffee Demanded by Each Household at Different Possible Prices
|Individual Demands of each Buyer||Total Market Demand|
The Market for Coffee – The SUPPLy Side
Quantities of Coffee supplied by Each firm at Different Possible Prices
|Individual Supply of each Seller||Total Market Supply|
Questions (you enter your answers in the Learning Management System for your school):
- If the market price is $1.80, how many people will buy coffee?
- How many units of coffee will be supplied to the market if the price is $1.60?
- What will the equilibrium price of coffee be in this market?
- Given the equilibrium price you noted in the previous question, how many units of coffee will actually be sold and purchased?
- Again, assuming equilibrium in the market, how many units of coffee will Moe consume?
- Again, assuming equilibrium exists in the market, how much total money will Moe spend on coffee?
- For this question, assume that a fire has destroyed the Cup’o’Joe place of business, eliminating Joe’s ability to provide coffee to the market. What will the new equilibrium market price be?
- Assume the fire described in the previous question has occurred and that the market is now without Cup’o’Joe as a supplier. This event has shifted the market supply curve which way?
- Many voters are complaining that coffee costs too much for such an essential daily good. In order to win votes from the many coffee drinkers in the nation, law-makers have decided to put an end to what they call “widespread coffee price-gouging. They have passed a law that creates a “maximum fair price of $1.20 per unit of coffee”. How much coffee (Q) will Larry, Curly, and Moe together be able to buy and consume once this “maximum fair price” is enforced? (assume the original supply and demand curves) (hint: consider both supply and demand effects)
- The profitability of small independent coffee sellers such as Shemp and Ted is being squeezed by the large global corporations that control the world raw coffee bean market. The local government has proposed to help the smaller producers such as Shemp, Ted, and Joe by developing a retail coffee price-support program. Under this program, the government will commit to buying as much retail coffee as necessary from these small sellers in order to push the market price up to $2.00. Which of the following statements describes the likely impact of this policy? (check all that are true):
- government buys 15 units of coffee
- government buys 24 units of coffee
- suppliers increase production to 25 units
- a shortage of coffee occurs
- Larry and Curly quit drinking (buying) coffee
- Larry, Curly, and Moe keep their previous consumption but have to pay $2.00 per unit now
- Shemp and Ted stop producing coffee
- a new market equilibrium is established at the “fair price” (do not consider govt as part of the “market”)
- nothing changes from the previous equilibrium. It is an ineffective law.
- Remember people can’t buy something that hasn’t been supplied. And likewise, a firm can’t sell something if nobody wants to buy it.
- At the equilibrium price, the quantity supplied by the market exactly equals the quantity buyers want to buy at that price.