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Chapter 3: Problem 6

Suppose that the supply schedule of Maine lobsters is as follows: $$ \begin{array}{c|c} \begin{array}{c} \text { Price of lobster } \\\ \text { (per pound) } \end{array} & \begin{array}{c} \text { Quantity of lobster } \\\ \text { supplied (pounds) } \end{array} \\\ \$ 25 & 800 \\\ 20 & 700 \\\ 15 & 600 \\\ 10 & 500 \\\ 5 & 400 \end{array} $$ Suppose that Maine lobsters can be sold only in the United States. The U.S. demand schedule for Maine lobsters is as follows: $$ \begin{array}{c|c} \begin{array}{c} \text { Price of lobster } \\\ \text { (per pound) } \end{array} & \begin{array}{c} \text { Quantity of lobster } \\\ \text { demanded (pounds) } \end{array} \\\ \$ 25 & 200 \\\ 20 & 400 \\\ 15 & 600 \\\ 10 & 800 \\\ 5 & 1,000 \end{array} $$ a. Draw the demand curve and the supply curve for Maine lobsters. What are the equilibrium price and quantity of lobsters? Now suppose that Maine lobsters can be sold in France. The French demand schedule for Maine lobsters is as follows: $$ \begin{array}{c|c} \begin{array}{c} \text { Price of lobster } \\\ \text { (per pound) } \end{array} & \begin{array}{c} \text { Quantity of lobster } \\\ \text { supplied (pounds) } \end{array} \\\ \$ 25 & 100 \\\ 20 & 300 \\\ 15 & 500 \\\ 10 & 700 \\\ 5 & 900 \end{array} $$ b. What is the demand schedule for Maine lobsters now that French consumers can also buy them? Draw a supply and demand diagram that illustrates the new equilibrium price and quantity of lobsters. What will happen to the price at which fishermen can sell lobster? What will happen to the price paid by U.S. consumers? What will happen to the quantity consumed by U.S. consumers?

Short Answer

Expert verified
ves intersect. In this case, the equilibrium price is $15 and the equilibrium quantity is 600 lobsters. This means that at a price of $15, the quantity of lobsters demanded and supplied in the U.S. market is 600. #tag_title#b. Combine the U.S. and French demand schedules #tag_content#Now, we need to take into account the French demand for Maine lobsters. Add the French demand quantities to the U.S. demand quantities at each price level: Combined demand schedule (price, quantity demanded): (5, 1300) (10, 1100) (15, 900) (20, 700) (25, 500) #tag_title#c. Find the new equilibrium price and quantity #tag_content#With the combined demand schedule, we can now find the new equilibrium price and quantity. The new equilibrium occurs where the supply curve intersects the combined demand curve. In this case, the new equilibrium price is $20, and the new equilibrium quantity is 700 lobsters. This means that with the introduction of foreign demand from France, the price of lobsters increases to $20, and the market equilibrium quantity increases to 700 lobsters. #Summary# To summarize, the initial equilibrium price and quantity for the U.S. market were $15 and 600 lobsters, respectively. After considering the French demand, the new equilibrium price and quantity increased to $20 and 700 lobsters. This demonstrates that an increase in foreign demand can lead to higher prices and larger equilibrium quantities in a market.

Step by step solution

01

a. Draw the demand and supply curves

To draw the demand and supply curves, plot the quantity of lobsters on the x-axis and the price of lobsters on the y-axis. Next, plot the points of the supply and demand schedules for the U.S. on the graph: U.S. supply schedule (price, quantity supplied): (5, 400) (10, 500) (15, 600) (20, 700) (25, 800) U.S. demand schedule (price, quantity demanded): (5, 1000) (10, 800) (15, 600) (20, 400) (25, 200)
02

Find the equilibrium price and quantity

The equilibrium price and quantity occur where the supply and demand cur

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