Solution to Problem Set 02 (ECO100)

Solution to Problem Set 02 (ECO100) - e Black Market Price...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Solutions to Problem Set 2 1. a) b) c) d) e)
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2 2. People drive their cars more in the summer and the increased demand for gas increases the price of gas. The increased supply of tomatoes in the summer decreases the price of tomatoes. These situations are depicted in the following diagrams. Summer Market for Gas Summer Market for Tomatoes 3. a) 1000P = 8000 - Q or P = 8 – 0.001Q because it is negatively sloped b) Equilibrium D = S => 8 – 0.001Q = 2 + 0.002Q => 0.003Q = 6 => Q = 2,000 bushels and 1000P = 8000 – 2000 or 1000P = 2000 + 2(2000) => P = $6/bushel Total expenditure = P.Q = $6(2000) = $12,000 c) Effective price ceiling is determined by supply conditions: 1000(4) = 2000 + 2Qs => 2Qs = 2000 => Qs = 1000 d) At P = $4, the quantity demanded is: 1000(4) = 8000 - Qd => Qd = 4000 Therefore, there is an excess demand (shortage) = Qd - Qs = 3000 bushels
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Unformatted text preview: e) Black Market Price from Demand Curve at price ceiling output => 1000P = 8000 - 1000 => P = $7 3 4. a) b) 5. a) $0.70 and 60 million litres b) $0.70 * 60 million = $42 mil. c) i) Qd = 50 million litres Qs = 90 million litres ii) Consumers buy only 50 million litres => Surplus = Qs - Qd = 40 mil.litres iii) The government must buy the surplus at the price floor => $1.00*40 million litres = $40 million d) i) S shifts down to S 1 ii) $0.40 and 70 million. Supply shifts down by exactly $0.40 per unit of output but quantity demanded increases as price falls. iii) $0.40 * 70 million = $28 million 4 6.a) $0.60 and 50 million litres -> $30 million revenue b) i) 30 million litres ii) Shortage = Qd - Qs = 90m - 30m = 60m liters iii) $0.70 (from Do at 30 million litres) c) i) Shifts Supply up by $0.30 per unit ii) $0.70 and 30m litres iii) $0.30*30m = $9 million...
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Solution to Problem Set 02 (ECO100) - e Black Market Price...

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