Problem Set #2 answer

Problem Set #2 answer - The price was set below equilibrium...

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Econ 101 ANSWERS TO PROBLEM SET 2 Professor Wissink Cornell University 1. b, a, e, a, a 2.(a) X = 300 - 20p D X = 20 + 50p S p = 4 * X = 220 * (b) X = 510 - 20p D X = 20 + 50p S p = 7 * X = 370 * (c) at p' = 5 X = 270 S X = 410 D => shortage of 140 cuts. (d) Incorrect. Removal of control => no change in S, D. As p 8 , quantity supplied increases; quantity demanded decreases.
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APS2 2 3. When oranges are "in-season" it means there is an increase in supply. When vacations are "in-season" it means there is an increase in demand. 4.(a) If p = $300 => X = 6 mil. At this price X = 2 mil. Therefore surplus S D = 4 million tons/yr to be bought by government at $300 per ton = $1.2 billion/year. (b) At p = $300 => X = 6 mil. X = 6 mil. => demand price $100. Therefore S S the government pays $200/ton x 6 mil. tons/year = $1.2 billion/yr. 5.(a) (b) (c) (d)
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APS2 3 (e) 6.(a)
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Unformatted text preview: The price was set below equilibrium price => shortage resulted. (b) Two possible explanations: (i) Consumers are hoarding, so current demand increases and shortage increases. (ii) Suppliers pull soap off shelves to sell it in January. 7. Bush is wrong. Excess demand at p drove o price up. Rise in price induced greater quantity supplied and movement to new Equilibrium E . 1 8.(a) Supply is schedule “B”. Demand is schedule “A”. (b) See graph. (c) X = 8-½p or p = 16 - 2X and D D X = ½p or p = 2X. S S set 16-2X* = 2X* and solve for X* Get X* = 4 which implies that p* = $8/unit (d) If eating chocolate reduces heart disease you’d expect an increase in demand ( 8 D) which would imply, eventually, an increase in both X* and p*. p X 16 8 D S p* = 8 X* 4 D new p* X* APS2 4...
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Problem Set #2 answer - The price was set below equilibrium...

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