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ECO101-PS3 - MIDDLE EAST TECHNICAL UNIVERSITY NORTHERN...

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MIDDLE EAST TECHNICAL UNIVERSITY – NORTHERN CYPRUS CAMPUS ECO 101 (01, 02, 03) FALL 2010 PROBLEM SET 3 Part A. Problems Q.1. Let’s say the demand for apples is Q d =100-4P and the supply is Q s =-20+2P a. Draw the demand and supply curves. b. Find the equilibrium price and quantity. c. Find the consumer surplus, producer surplus and the deadweight loss at this equilibrium level. d. Find the excess demand/excess supply of the commodity when the price is P=10. Show your calculations. e. Now assume that the government imposes a price ceiling of 15. Find the consumer and producer surplus and the deadweight loss in this case. Q.2. Suppose that the equilibrium rent for a two-bedroom apartment in downtown Chicago is $900 per month. The city council decides to place a price ceiling on apartments and will not allow landlords to charge more than $700 per month. Draw this situation using a graph. Make sure that you show the original equilibrium and the effect of the price ceiling on the market. What will happen in this market? How would your answer change when the city council decides a price ceiling of $1000?
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