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Economics 101 Answers to Homework #2 1. a. An increase in the price of bottles will decrease the supply (shift from S1 to S2) of Coca-Cola, resulting in a higher equilibrium price and a lower equilibrium quantity. b. A decrease in the price of Pepsi (a substitute for Coca-Cola) will decrease the demand for Coca-Cola (shift from D1 to D2). This will result in a lower equilibrium price and a lower equilibrium quantity. c. This government action will decrease the demand for Coca-Cola (shift from D1 to D2), resulting in a lower equilibrium price and a lower equilibrium quantity. D q S1 S2 D1 D2 q S

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a. b. At a price of \$60, people want to buy 2,200 cell phones. Firms want to sell 680 cell phones. Thus there is a shortage of 2200-680=1,520 cell phones. c. The equilibrium is a quantity of 1,250 cell phones selling at a price of \$91.67 each. Consumer surplus equals (1/2)*(1250)*(133.33 - 91.67) = 26,041.7. Producer surplus equals (1/2)*(1250)*(91.67 - 22.22) = 43,402.8.
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