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Problem Set 02 (ECO100) - Prof Gustavo Indart Department of...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Problem Set 2 1. Illustrate on demand and supply diagrams representing the automobile market the effects on price and quantity of each of the following events, ceteris paribus: a. An increase in average household income. b. A large increase in the price of public transit. c. A large increase in the price of gasoline. d. A decrease in the price of sheet metal. e. An increase in the wage rate of auto workers. 2. More gasoline and more tomatoes are sold in the summer than in the winter, even though gasoline prices tend to be at their highest and tomato prices at their lowest in the summer. Can you make sense of these facts with supply-and-demand diagrams? 3. The market demand and supply curves for bushels of wheat are given by the following equations. 1000P = 8000 – Q 1000P = 2000 + 2Q where P is the money price of one bushel of wheat and Q is the quantity of bushels of wheat. a. Which is the demand curve? b. If the market for bushels of wheat is a free market, at what price is a bushel of wheat sold? What is the total expenditure by consumers at this price? c. Suppose the government imposes an effective price ceiling of $4 on a bushel of wheat. How many bushels are now sold?
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