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aps2 - Economics 102 Introductory Macroeconomics Spring...

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Economics 102 Introductory Macroeconomics - Spring 2006, Professor J. Wissink Problem Set 2 – ANSWERS 1. Let's model a month in the life of the rental market for apartments in Ithaca. a) Graph the supply and demand curves. Supply and Demand 0 300 600 900 1200 1500 1800 2100 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Quantity Price Supply Demand b) Demand is given as: X D = 10,000-5P and supply is given as: X S = -2000+15P Solve for equilibrium: 10,000-5P = -2000+15P 12,000 = 20P 600 = P E.g. from demand we get: X D =10,000-5*600=7,000. The equilibrium rent price is $ 600 and the equilibrium quantity is 7000 apartments c) At price ceiling $500, there is an excess demand for apartments, since X D (500)=7,500>X S (500)=5,500. The number of apartments rented will be 5,500. d) Price ceiling $ 700 is not effective (not binding) because it is above equilibrium price $ 600. Original equilibrium price (P=600) and quantity (X=7,000) will not change. e) Ms. Carolyn Peterson, see: http://ithaca.govoffice.com/index.asp?Type=B_LIST&SEC={472F75C9-54AC-42C9-ACE4-016834ABB71C } 1
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2. Critically evaluate the following sequential statements and explain why they are true, false or uncertain. a) True. As the price of coffee decreases, consumers demand more coffee creamer at each creamer price, i.e.
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