# HW4 answers_302 - Econ 302 Fourth Problem Set Solution...

This preview shows pages 1–3. Sign up to view the full content.

Econ 302- Fourth Problem Set Solution Spring 2011-Ali Toossi Due: Wednesday, February 23 All problem sets should be prepared neatly and professionally. Problem sets should be stapled and should contain the following information on the right-hand corner of the page: your name , your section , homework number and date . Problem sets that are sloppy, torn from spiral-bound notebooks, or which are illegible, or unstapled, will be graded down. Chapter 2(questions for recview): Answer to question 1. A shortage occurs when, at a given price, quantity demanded exceeds quantity supplied. Scarcity implies that not everyone can consume as much of a good as he wants. A good can be scarce without a shortage occurring if the price of the good is set at the market equilibrium. Answer to question2. The supply curve would be a horizontal line where the price equals zero. The demand curve would be a typical demand curve. If the price is greater than zero, then the market system is acting to allocate resources; not everyone can have as much as they want. Answer to question5. a . Shift in demand b. Change in quantity demanded (shift in supply) c. Change in the quantity demanded (shift in supply) d. Shift in demand Answer to question8. For the tax burden to fall mostly on consumers rather than producers (buyers rather than sellers), you want to find a product (or products) for which the quantity supplied is very responsive to price but quantity demanded is less responsive to price. Addictive goods like cigarettes and alcohol may fit this description. Chapter 2(problems): Answer to problem 1. a) The imposition of the ceiling price on tea causes a reduction in the quantity of tea bought, from Q 1 to Q 2 (left panel). The result is a leftward shift in the demand for lemons, resulting in a reduction in both price and quantity (right panel). Price Price S S P 1 l P 1 t P 2 t D D 2 Q 2 t Q 1 t Tea Q 2 l Q 1 l Lemons 1 P 2 l D 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
b) The ceiling price for tea lowers the quantity people are able to buy from Q 1 t to Q 2 t . There is excess demand for tea at the ceiling price P 2 t , and some of this excess demand spills over to substitute products such as coffee. The result is that the equilibrium price of coffee rises. (Note: This result may seem inconsistent with the claim that a fall in the price of a good's substitute reduces the demand for that good. But this claim refers to a fall in the equilibrium price of the good, not a price reduction caused by a ceiling.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern