homework_3_solutions-1

# homework_3_solutions-1 - ECON 51 HW#3 SOLUTIONS 1 Correct...

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ECON 51 HW#3 SOLUTIONS 1. Correct answer: b 2. i) Statement is true ii) Statement is false 3. Correct answer: c 4. Correct answer: a 5. a) ↓ S and ↑ D b) ↑ D c) ↓ S and ↓ D d) ↓ S e) ↓ D 6. a) See Excel Sheet b) Equilibrium price is determined by quantity supplied and quantity demanded, i.e. for the optimal price these two quantities will be equal. In our example, quantity demanded is equal to quantity supplied for the price in between 5\$ and 6\$. Therefore, imposing price ceiling of 6\$ by the University will not have any effect on the market since the optimal price is anyways lower and it could be set at that level. However, if the price of 6\$ was set by university to be a price floor, there would be excess supply on this market. That is, for price of 6\$ firm would want to supply more T-shirts, while students would want to buy less T-shirts for this higher price. Therefore, this difference would generate excess supply on the T-shirt market. c) Authorities might argue for a price ceiling on a good so that upstream producers can be

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## This note was uploaded on 05/22/2010 for the course ECON 51 taught by Professor Leachman during the Fall '08 term at Duke.

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homework_3_solutions-1 - ECON 51 HW#3 SOLUTIONS 1 Correct...

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