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2009PS_2_Solutions

# 2009PS_2_Solutions - AEM 415 Price Analysis Fall Semester...

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1 AEM 415 Price Analysis Fall Semester 2009 Homework Assignment 2 Suggested Solutions Problem 1 (a) The equilibrium price and quantity can be calculated by setting the quantity demanded equal to the quantity supplied, or 2250 * 9 * 250 * * 16 4000 * 9 * * 7 4000 *   P Q P P P Q P Q S D (1 points) The stars denote the equilibrium. (b) If the Mayor’s plan is adopted P max is 200. There will be an excess demand = Q d – Q s = 800 200 9 200 7 4000 (1 points) (c) The market will ignore any price ceiling above the equilibrium price. Nothing will happen if the executive's plan is adopted (i.e., market price and quantity will prevail). (1 point) Problem 2 (a) (1 point) When Belgium’s harvest fails due to flooding, France experiences an increasing demand for potatoes, i.e. France exports potatoes to Belgium. We assume no trade restrictions. This increasing demand can be represented by a demand curve which is shifted upwards.

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