Answer+Key+to+HW1 - Answer Key to Homework #1 2. The demand...

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Answer Key to Homework #1 2. The demand curve shifts to the left from D 1 to D 2 by 30%, which is the distance between Q 0 and Q 4 . For supply curve S 2 , the price drops from p 0 to p 1 , a change less than 30%. For a steeper supply curve S 1 , the price decreases to p 2 , a larger decrease, yet still smaller than 30%. Accordingly, the equilibrium quantity changes less than 30% as well. 6. The increase in demand for ethanol has increased the demand for corn, an input in the production of ethanol. The market demand for corn shifts to the right increasing both the equilibrium price and quantity. The increase in price reduces the quantity of corn that is consumed as food. The increase in price induces more farmers to produce corn and increases the demand for agricultural land. See the NY Times article: Ethanol is Feeding Hot Market for Farmland” by Monica Davey August 8, 2007. http://www.nytimes.com/2007/08/08/us/08farmers.html?_r=1&th&emc=th&oref=slog in 16. The numbers suggest that labor demand is elastic. In the following figure, the supply curve shifts to the right by 11%, yet the decrease in equilibrium wage is only 3.2%. 1
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18. Use equation 2.28 from the textbook to solve for the change in price. The incidence of a specific tax τ on consumers = dP d η τ ηε = .
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Answer+Key+to+HW1 - Answer Key to Homework #1 2. The demand...

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