ANSWERS PROBLEM SET 1 (2) (1)

# ANSWERS PROBLEM SET 1 (2) (1) - ANSWERS: PROBLEM SET 1...

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ANSWERS: PROBLEM SET 1 ECON303 Multiple choice (1-2 Ch. 1; 3-4 Ch. 2; 5-10 Ch. 3) 1) A 2) D 3) D 4) C 5) A 6) C 7) E 8) D 9) B 10) A Essay (11-12 Ch. 1; 13-16 Ch. 2; 17-18 Ch. 3) 11) The nominal price of a 1990 laptop was \$3,500 and the CPI that year was 130.7. The nominal price of a laptop in 1998 was \$1,600 and the CPI that year was 163.0. What is the real price of a 1998 laptop in terms of 1990 dollars? By what percent has the real price of laptops changed? Answer: 130.7(\$1,600)/163 = \$1,283. Percent decline in the real value of laptops: -100(\$1,283 - \$3,500)/\$3,500 = \$2,217(100)/\$3,500 = 63.34%. 12) The price to attend a NBA basketball game in Chicago is \$55 while the CPI in Chicago is 153. The CPI in Charlotte is 108 while the price to attend a NBA basketball game is \$52. Which city offers a smaller real cost of attending a NBA basketball game? Answer: Chicago real value [NBA(Charlotte)] = 153(52)/108 = \$73.67. The real value of a game in Charlotte exceeds the real value of a game in Chicago. Chicago offers a smaller real cost of attending a game. 13) The daily demand for hotel rooms on Manhattan Island in New York is given by the equation QD = 250,000 375P. The daily supply of hotel rooms on Manhattan Island is given by the equation QS = 15,000 + 212.5P. Diagram these demand and supply curves in price and quantity space. What is the equilibrium price and quantity of hotel rooms on Manhattan Island?

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Answer: The equilibrium price can be found by equating quantity demanded and quantity supplied (graphically, this is where the Demand and Supply curves intersect). The solution for the equilibrium price may be derived from Q D = 250,000 375P = 15,000 + 212.5P = Q S . We can then solve for equilibrium price as P = 235,000 587.5 = 400. At a price of \$400, quantity supplied and quantity demanded are 100,000.
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