Econ302-hw1-spring080

Econ302-hw1-spring080 - Econ302 Homework Assignment 1...

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Econ302 Homework Assignment 1 Spring 2008 Due Wednesday January 30  in Class 1.  The following table shows the average retail price of butter and the Consumer  Price Index from 1980 to 2001.   ˇ 1980 1985 1990 1995 2000 2001 CPI 100 130.58 158.62 184.95 208.98 214.93 Retail Price of butter \$1.88 \$2.12 \$1.99 \$1.61 \$2.52 \$3.30 (salted, grade AA, per lb.) a.     Calculate   the   real   price   of   butter   in   1980   dollars.     Has   the   real   price  increased/decreased/stayed the same since 1980?

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b.  What is the percentage change in the real price (1980 dollars) from 1980 to 2001? c.  Convert the CPI into 1990 = 100 and determine the real price of butter in 1990  dollars.
d.  What is the percentage change in the real price (1990 dollars) from 1980 to 2001?  Compare this with your answer in (b).  What do you notice?  Explain. 2.   Use supply and demand curves to illustrate how each of the following events  would affect the price of butter and the quantity of butter bought and sold: a. An increase in the price of margarine.

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