econ101_ps3_sol - METU Department of Economics Econ 101:...

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1 METU Department of Economics Econ 101: Introduction to Economics I Sections 01-02-03 Fall 2010 PROBLEM SET 3 (With Answers) PART A: PROBLEMS Q-1) For each of the following events, show the shift in the demand curve and/or supply curve that results from the event, and the change in equilibrium price and quantity. a) Medical reports show that oat bran does not reduce cholesterol, contrary to earlier beliefs. What happens to the demand and/or supply curves for oat bran? What happens to the equilibrium price and quantity of oat bran sold? Since some people were probably eating oat bran because of this alleged characteristic, they will quit eating it and the demand curve will shift leftward (a decrease in demand). There is no change in the supply curve. Both the equilibrium price and the quantity of oat bran sold will be lower. b) The price of water sold to agricultural producers in Adana is raised. What happens to the demand and/or supply curves for vegetables? What happens to the equilibrium price and quantity of vegetables sold? This event causes an increase in the cost of producing vegetables. For each quantity produced, agricultural producers will require a higher price (to cover the higher cost) in order to be induced to supply that quantity. Because of this, the supply curve will shift upward (a decrease in supply). There is no change in the demand curve. The equilibrium price will rise and the quantity of vegetables sold will decrease.
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2 c) An insect pest attacks the coffee crop around the world. What happens to the demand and/or supply curves for tea? What happens to the equilibrium price and quantity of tea sold? The supply of coffee is reduced, increasing the price of coffee. Therefore some coffee drinkers will find it too expensive to drink and will switch to its substitutes, one of which is tea. The demand for tea will increase (the demand curve for tea shifts to the right) and there is no change in the supply curve of tea. Both the equilibrium price of tea and the quantity of tea sold will increase. Q-2) Suppose that the Mo ğ ollar will give a concert to the METU Students in METU Studium in the forthcoming days. METU has approximately 25000 students. The percentage distribution of all METU Students in terms of the demand for the concert ticket is as follows: 30 % of the students are willing to pay 20 TL or more 50 % of the students are willing to pay 15 TL 75 % of the students are willing to pay 10 TL 90 % of the students are willing to pay 5 TL 100 % of the students are willing to pay 1 TL a) Derive the demand schedule. Wee need to calculate the quantities demanded that corresponds to the prices are: 0.3*25000=7500, 0.5*25000=12500, 0.75*25000=18750, 0.9*25000=22500, 25000 So, the demand schedule is Q d P (TL) 7500 20 12500 15 18750 10 22500 5 25000 1 b) Carefully draw the demand curve.
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3 c) 25000 students want to go to the concert. However, only 12500 concert ticket will be sold due to the capacity constraint of the stadium. If the ticket sales are based on willingness to
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This note was uploaded on 01/05/2012 for the course ECON 101 taught by Professor Gulipektunc during the Spring '11 term at Middle East Technical University.

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econ101_ps3_sol - METU Department of Economics Econ 101:...

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