M I M E 3 1 0 E N G I N E E R I N G E C O N O M YSOLUTIONS TO PROBLEM SET #1 – INTRODUCTION1. i) The demand and supply curves are plotted in the graph below.0510152025303520406080100120QUANTITY ('000 units/month)PRICE ($/unit)SUPPLYDEMANDShortageThe market equilibrium occurs at the intersection of the demand and supply curves, i.e. at a priceof about $62/unitand a quantity of approximately 11500 units/month.ii)If the price is frozen at $45/unit, there would be an excess demand (i.e. a shortage) ofabout 18500 units/month(22 000 - 3500). As the quantity supplied at this price level would onlybe 3500, the price on the black market could reach a value as high as about $87/unit, the priceassociated with a demand of 3500 units.The increased demand and supply schedules associated with parts iii and iv are generated byadding the appropriate amounts (5000 units for demand and 6000 units for supply) to each quan-tity given in the table. Both the original and increased demand and supply curves are illustrated inthe graph below. Note that the increased demand and supply curves are not parallel to theoriginal curves.1
This preview has intentionally blurred sections.
Sign up to view the full version.