Eco182A_Spring_2011_Quiz_2_Version_2_Answers

Eco182A_Spring_2011_Quiz_2_Version_2_Answers - UNIVERSITY...

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UNIVERSITY AT BUFFALO DEPARTMENT OF ECONOMICS Economics 182A, Spring 2011 Answers to Quiz Two, Version Two. Question 1. The market for blank DVD disks is perfectly competitive. For a given price of $ p per disk the quantity demanded of disks is Q D = 2000 - 100 p and the quantity supplied of disks is Q S = - 400 + 300 p . (i) At what price will disks be traded? Answer: The market price p e for disks equalizes the quantity demanded of disks and the quantity supplied of disks; that is, 2000 - 100 p e = - 400 + 300 p e . The market-clearing price p e = $6 per disk. (1 point.) (ii) How many disks will be traded? Answer: At a price of $6 per disk the quantity demanded of disks is 1400 disks and the quantity supplied of disks is 1400 disks. Therefore 1400 disks will be traded. (1 point for correctly computing the quantity traded.) Question 2. The extensive use of corn in the United States to manufacture ethanol as an additive to gasoline has caused a dramatic increase to the market price of corn. Corn is used as an input in the production of many food items, such as bread. What effect, if any, will the higher price for corn have on (i) the market demand for bread (choose from “lower demand”, “no change” and “higher demand”)? Answer:
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Eco182A_Spring_2011_Quiz_2_Version_2_Answers - UNIVERSITY...

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