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Answer Key to HW 3 ecn200

# Answer Key to HW 3 ecn200 - PROBLEMS 1 Using Figure 3.7 as...

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PROBLEMS 1. Using Figure 3.7 as a guide, determine the approximate size of the market surplus or shortage that would exist at a price of (a) \$40, (b) \$20. Using Figure 3.7, and the new demand curve:(a) at a price 0f \$40, there would be surplus of 50 (b) at a price of \$20, there would be a shortage of 87.5. 2. Illustrate the different market situations for the 1992 and 1997 U2 concerts, assuming constant supply and demand curves. What is the equilibrium price? (See Headlines on p. 72 and p. 74) The equilibrium price for U2 tickets is somewhere between \$52.50 (the price in 1997) and \$28.50 (the price in 1992). 3. Given the following data, (a) construct market supply and demand curves and identify the equilibrium price; and (b) identify the amount of shortage or surplus that would exist at a price of \$4. Participant Quantity Supplied (per week) Price \$5 \$4 \$3 \$2 \$1 Supply Side Alice 3 3 3 3 3 Butch 7 5 4 4 2 Connie 6 4 3 3 1 Dutch 6 5 4 3 0 Ellen 4 2 2 2 1 Market Total 26 19 16 15 7 Participant Quantity Demanded (per week) Supply Demand \$52.50 \$28.50 Surplus Shortage Price Quantity

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(a) Equilibrium price is \$2. (b) At a price of \$4, there would be a surplus of 9, the difference between the market quantity supplied of 19 and the market quantity demanded of 10. 4. Suppose that the good described in problem 3 became so popular that every consumer demanded one additional unit at every price. Illustrate this increase in market demand and identify the new equilibrium. Which curve has shifted?
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