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are100a-problem-set-1 - ARE 100A Richard Howitt Department...

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Department of Agricultural and Resource Economics University of California, Davis ARE 100A Problem Set I Winter 2010 Richard Howitt Quiz on January 15 th Read the following article: http://www.nytimes.com/2010/01/03/business/economy/03coral.html check the video interview with Ms Pellegrino if you want to see a depressing situation. 1: Given that the quantity of houses sold per month in the Cape Coral region of Florida is measured as ( Q ) in 1000 houses/month and the median price ( p ) is measured in $1000. The demand for houses in 2005 is: Q = 1980 – 2.8 p The Supply of houses on the market in 2005 is: Q = 290.94 + 3.237 p (a) Calculate the market equilibrium quantity of houses (b) Calculate the elasticity of supply and demand at the equilibrium (c) The federal government recently announced an extension of the $8,000 subsidy to house buyers- (i) How would you modify your pricing model to account for the subsidy ? (Hint: think who gets the subsidy, and since it is on the purchased price what it does to the demand function) (ii)
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