Rec 1 - ECO303.02 Recitation 1 1) For each city across the...

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ECO303.02 Recitation 1 1) For each city across the U.S., economists construct a price index for a similar basket of goods. In Los Angeles the index is 127.3 and the index for Dallas is 94.8. If you have been offered $137,000 for a job in Los Angeles and $117,000 for a similar job in Dallas, which job affords you the highest purchasing power of the bundle of goods in the price index? Use the Los Angeles value as the base. Answer: Real value[Dallas] = 127.3($117,000)/94.8 = $157,111. This exceeds the real $137,000 salary for the job in Los Angeles. The Dallas job provides higher purchasing power. 2) Suppose that due to more stringent environmental regulation it becomes more expensive for steel production firms to operate. Also, recent technological advances in plastics has reduced the demand for steel products. Use Supply and Demand analysis to predict how these shocks will affect equilibrium price and quantity of steel. Can we say with certainty that the market price for steel will fall? Why?
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This note was uploaded on 12/14/2010 for the course ECO 303 taught by Professor Yunshanchan during the Fall '08 term at SUNY Stony Brook.

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Rec 1 - ECO303.02 Recitation 1 1) For each city across the...

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