Thursday Idiocy for March 13, 2014
Principles of Economics: Problems: Spite and Envy: BMWs at Crony Capitalism University II

Principles of Economics: Problems: Market Equilibrium: Pots, Yoga Lessons, and Lattes at Euphoric State University

The economy around Euphoric State University has three types of workers—-Dharmas, Egberts, and Gregs—-who produce yoga lessons, ceramic pots, and lattes, respectively. In this economy the prices of yoga lessons and ceramic pots are expressed in terms of lattes.

Suppose that Egberts are willing to produce pots according to the following rule: at a price of zero, they will make zero plates, for every 1-latte increase in the price of pots, they are willing to make ten additional pots.

Suppose that demand for pots follows this rule: if pots cost 10 lattes, nobody wants to buy any. Each 1-latte reduction in the price of pots leads consumers to want to buy an additional ten pots.

  1. What is the market equilibrium price of pots in this market?
  2. What is the market equilibrium quantity of pots exchanged in this market?
  3. What is the consumer surplus in this market, in units of lattes?
  4. What is the producer surplus in this market, in units of lattes?