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problem set 3_ans_econ2302

# Principles of Microeconomics (7th Edition) (Case/Fair Economics 7e Series)

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Economics 2302 Principles of Microeconomics Isaac McFarlin University of Texas at Dallas Solution to Problem Set 3 1. Answer: In equilibrium, Q demanded = Q supplied. Demand is Q = 100 – P. Supply is Q = P – 20. Equate to get: 100-P = P – 20. Hence, 2P = 120, and P = 60. Substitute into either demand or supply equation to get Q = 100 – 60 = 40, or Q = 60 – 20 = 40. Picture: 2a. market for movie tickets 2b. market for PDAs videos and movie tix are PDAs are normal good; decline substitutes; decline in P videos in income causes decline in D; causes D to decline; P movietix both P and Q unambiguously fall. falls and Q movietix falls D D’ S B D’ S 100 60 20 S D 40 Q 1 P 0 P 1 P 0 P 1 Q 1 Q 0 Q 0

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2 2c. market for beef 2d. market for delivery services Mad cow fear cause decrease in increase in P(gas) cause supply Demand (to D’); P and Q to decline (to S’); P rises and Unambiguously fall (Point A to B) Q falls (point A to B) 2e. market for PCs Case 1: S & D both shift to right: Case 2: D shift outweighs S shift. Equilibrium P falls and Q rises Equilibrium P rises and Q rises P S’ S D Q A D’ B P(1) P(0) A P(0) P(1) P(0) P(1) Q(1) Q(0) Q(0) Q(1) S S S’ D’ D D Q Q P P B A B S S’ D’ A B D P Q P(1) P(0) Q(0) Q(1) Q(0) Q(1) B
3 3a. Demand curve for the 2 type of teachers are identical; only supply schedules differ, because the opportunity cost are higher for math teachers than they are for kindergarten teachers. Hence predict that

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problem set 3_ans_econ2302 - Economics 2302 Isaac McFarlin...

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