ECON 200 Homework 3 - ECON
200
Homework
3


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Unformatted text preview: ECON
200
Homework
3
 Due
Thursday,
1/25/10
 
 1. As
part
of
the
housing
the
crisis,
the
government
gave
all
first
time
buyers
an
 $8000
tax
credit,
effectively
reducing
the
cost
of
all
homes
to
new
buyers
by
 $8000
(unless
the
house
cost
under
$8000,
as
in
places
like
Detroit).

Do
you
 think
this
encouraged
first
time
homebuyers
to
buy
larger,
more
expensive
 houses
or
smaller,
less
expensive
houses?
 
 2. If
you
order
wine
at
a
restaurant,
there
is
always
a
mark‐up
on
these
wines
so
 that
they
are
considerably
more
expensive
than
if
you
bought
them
at
the
store.

 Why
is
it
hard
to
find
cheap
wines
on
restaurants
wine
lists?

Make
up
some
 prices
to
support
your
argument.
 
 3. John
and
Charlie
have
the
following
marginal
value
schedules
for
t‐shirts.

They
 both
currently
have
4
t‐shirts.


 
 a. Will
they
each
keep
their
4
t‐shirts,
or
will
they
trade
with
each
other?
 b. If
you
say
they
will
trade,
why
do
they
trade?

When
will
they
stop
trading?
 c. Why
do
we
say
that
this
trade
is
economically
efficient?
 
 Q 1 2 3 4 5 6 7 8 John's MV 8 7 6 5 4 3 2 1 Charlie's MV 12 11 10 9 8 7 6 5 
 4. Now
imagine
John
has
8
t‐shirts,
but
he
can
sell
these
in
a
market
if
he
wants
to.
 a. Given
his
marginal
demand
schedule
in
the
first
two
columns
below,
fill
in
 his
supply
schedule
for
the
market
prices
below.
 
 Quantity demanded 1 2 3 4 5 6 7 8 John's MV 8 7 6 5 4 3 2 1 Price 1 2 3 4 5 6 7 8 Quantity supplied 
 
 b. Calculate
John’s
total
costs
and
supplier
rents
when
the
price
is
$4.

Explain
 why
John
gets
this
rent.
 c. 
Draw
his
supply
curve
and
label
his
total
costs
and
supplier
rents
if
the
 price
of
apple
pies
is
$4.

 
 5. How
do
we
define
economic
efficiency?
Why
do
we
achieve
economic
efficiency
 when
the
economy
is
operating
where
supply
equals
demand?
 
 ...
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This note was uploaded on 02/06/2010 for the course ECONOMICS 200 taught by Professor Stiban,f during the Winter '10 term at University of Warsaw.

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