ECO101-PS2 - MIDDLE EAST TECHNICAL UNIVERSITY NORTHERN...

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MIDDLE EAST TECHNICAL UNIVERSITY – NORTHERN CYPRUS CAMPUS ECO 101 FALL 2012 PROBLEM SET 2 (Chapters 3 and 4) Part A. Problems Q.1. Illustrate the following with supply and demand curves: “With increased access to wireless technology and lighter weight, the demand for laptop computers has increased substantially. Laptops have also become easier and cheaper to produce as new technology has come online. Despite the shift of demand, prices have fallen.” Q.2. The demand function for red meat is: Q D = 130 – 20P The supply function for red meat is: Q S = 10 + 40P where Q D is thousand tons of red meat that consumers would like to buy each year, Q S is thousand tons of red meat that the producers would like to sell each year, and P is the price of red meat per ton. a) Calculate the equilibrium price and quantity in the market. b) Suppose that the animals used to produce red meat are caught to the “mad cow” disease. Which of the following might be the new demand curve for red meat? (1) Q D = 150 – 20P (2) Q D = 100 – 20P c) Find the new equilibrium price and quantity after the shift of the demand curve. d) Starting with the original demand and supply functions, if the cost of animal breeding decreases, which of the following might be the new supply curve? (3) Q s = 25 + 40P (4) Q s = 5 + 40P Q.3. The table gives the demand for and supply of teenage labor: Wage Rate (TL per hour) Quantity demanded (hours per month) Quantity supplied (hours per month) 2 3,000 1,000 3 2,500 1,500 4 2,000 2,000 5 1,500 2,500 6 1,000 3,000 a) What are the equilibrium wage rate and level of employment? b) What is the level of unemployment? c) If a minimum wage of 3 TL/hour is set for teenagers, how many hours do they work? d) If a minimum wage of 3 TL/hour is set for teenagers, how many hours of their labor is unemployed? e) If a minimum wage is set at 5 TL/hour, what is the wage rate paid to teenagers and how many hours of their labor is unemployed? Q.4. The market demand and supply functions for a commodity are given below: Q D = 140 – 6P Q S = – 29 + 7P a) Find the equilibrium price and quantity.
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