econ110 Problem+Set+1a+with+Answers

econ110 Problem+Set+1a+with+Answers - Econ 110a Prof....

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1 Econ 110a Prof. Simons Problem Set 1 with Answers (20 points) Chapters 2-5 1. (2.5 points, 0.5 each) You have just been called in by Congress to give advice on the rice market facing American farmers. For each of the following events analyze what will be the effect on the equilibrium price and quantity facing U.S. farmers. Show whether the demand curve or the supply curve shifts. a. The Japanese eliminate restrictions on sales of U.S. rice. answer: demand shifts out (there are now simply more people demanding US rice); equilibrium price and quantity increase b. A new strain of wonder rice is developed which increases productivity. answer: supply shifts to the right (it is now cheaper to produce any given quantity of rice); equilibrium price falls, and equilibrium quantity increases c. Rice is found to cause cancer in white mice. answer: demand shifts in; equilibrium price and quantity fall d. The price of wheat increases. answer: demand shifts out (wheat is a substitute); equilibrium price and quantity increase e. The price of fertilizer used in rice production increases. answer: supply shifts leftward (more expensive production); equilibrium price rises, and equilibrium quantity falls 2. (2 points) Suppose demand for seats at football games is P=1900 – (1/50)Q and supply is fixed at Q=90,000 seats. a. (0.5 pt. Find the equilibrium price and quantity of seats for a football game (using algebra and a graph). answer: The equilibrium quantity is Q = 90,000 seats and the equilibrium price is P = 1900 – (1/50)(90,000) = 1900 – 1800 = $100. b. (0.5 pt.) Suppose the government prohibits ticket scalping (selling tickets above their face value), and the face value of tickets is $50). How many consumers will be dissatisfied (how large is excess demand)?
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2 answer: At a price ceiling of P = $50, quantity demanded is found by solving 50 = 1900 – (1/50)Q for Q = 92,500 seats. Since the stadium only holds Q = 90,000 seats, there will be 92,500 – 90,000 = 2,500 dissatisfied fans who want to buy a ticket at P = $50 but cannot find one available. c. (1 pt.) How do the distortions of this price ceiling differ from the more typical case of upward-sloping supply? answer: Normally a price ceiling both raises quantity demanded and lowers quantity supplied. Here, only the first effect is present because the stadium capacity is fixed. S Price ($) D 100 50 0 80 90 92.5 Quantity of seats per game (000) 3. (1.5 points, 0.5 each) The market for DVD’s has supply and demand curves given by P=2Q s and P=42-Q d respectively. a. How many units will be traded at a price of $35? Which participants (buyers or sellers) will be dissatisfied?
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This note was uploaded on 09/25/2008 for the course ECON 110 taught by Professor Donaldbrown during the Fall '06 term at Yale.

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econ110 Problem+Set+1a+with+Answers - Econ 110a Prof....

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