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ECON191 solution

# ECON191 solution - ECON191 Spring 2010 Outline of suggested...

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1 ECON191 Spring 2010 Outline of suggested solutions to Problem Set 1 1) The price of Japanese cars before the quota is determined at A. after imposing the quota, the price of the car is determined at B. Therefore, the price of the car goes down, Japanese buyers are better off. (Those not from HK also buy more) 2) Alcohol is a substitute for petroleum. When petroleum price goes up, the demand for a alcohol goes down. This in turn raises the demand for food products, which can be used to produce alcohol. The price of these food products must go up. The supply curves for cows and pigs must shifts to the left because it now becomes more costly to raise them. Prices of pork and dairy products must go up. If the price ceiling is imposed, the quantity supplied of milk must go down relative to the equilibrium price. 3) The demand of sheep is the vertical summation o the demands for wool and mutton. Equilibrium price of sheep is P*. P M is price of mutton and P W is price of wool.

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ECON191 solution - ECON191 Spring 2010 Outline of suggested...

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