## Econ 2: Spring 2014: UC Berkeley: Econ 2: Sample Final Exam II: B. Supply and Demand: Bubble-Tea Drinks Near Crony Capitalism University

B. Supply and Demand: (20 minutes—if you are not through after 20 minutes, skip to the next question): In the central part of the state of Euphoria there is an enormous suburban sprawl, somewhere in the middle of which is Tall Stick, home of Crony Capitalism University. [Founded by a nineteenth-century Robber Baron who told his British investors that their money was safe in his enterprises because he was not just a financier but also a big wheel in the dominant political party and an ex-governor of the state of Euphoria. Ha, ha! Silly British investors! What they thought would be their profits became instead the core endowment of CCU.] We will look at the daily market for bubble-tea drinks near CCU.

Suppose that the quantity of bubble-tea drinks demanded and the quantity of bubble-tea drinks supplied daily are given by the equations:

• Demand: P = -10 + Q/800
• Supply: P = 20 - Q/1600

where P is the price of a bubble-tea drink in dollars:

1. What is the market equilibrium price?
2. What is the market equilibrium quantity?
3. What is the producer surplus?
4. What is the consumer surplus?
5. Explain, intuitively, why the distribution of producer and consumer surplus is what it is.
6. What would the distribution of consumer and producer surplus be if the supply curve equation were: {IF (10>P) THEN (Q=0)} AND {IF (P≥10) THEN (Q=16000)?