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: } 1
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2. Critically evaluate the following sequential statements and explain why they are true, false or uncertain. a)
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aps2 - Economics 102 Introductory Macroeconomics - Spring...

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