problem set 2 solutions

problem set 2 solutions - Econ 101 Prof Schuler Spring 2008...

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Econ 101 Prof Schuler Spring 2008 Problem Set 2 Suggested Solutions Q.1 a. Quantity goes down and price goes down b. Price goes up and quantity goes down. Supply Demand Quantity Price Supply Demand Quantity Price

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c. Quantity goes up and price goes down. d. Since orange is a normal good, price goes down and quantity goes down. Supply Demand Quantity Price Supply Demand Quantity Price
e. Since tangerines and oranges are substitutes, the demand of orange will decrease. Price of oranges will go down and quantity will go down. f. Price is ambiguous, quantity goes down. Q.2 Supply Demand Quantity Price Supply Demand Quantity Price

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Q. 2 a. Equilibrium price is \$6, and equilibrium quantity is 81. b. If the actual price in this market were above the equilibrium price, there will be excess supply. Hence, there will be many suppliers who are unable to sell their goods in the market at this price. They will cut the price to sell their goods, driving prices down till demand=Supply.
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