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EC111Class2Questions - supplied by Q S = − 10 4P − 4W...

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UNIVERSITY OF ESSEX Autumn Term 2011/12 DEPARTMENT OF ECONOMICS Tim Hatton EC111 Introduction to Economics: Class Exercises 2 (week 4) 1) (a) Explain the distinction between an increase in demand at any given price (i.e. a shift of the demand curve) and an increase in the quantity demanded following a change in price (i.e. a movement along the demand curve). (b) Show in a diagram the effect on the demand curve, the supply curve and the equilibrium price and quantity of pork of (i) a fall in the price in beef (ii) an increase in the price of animal feeding stuffs (iii) an increase in consumers’ income (iv) an innovation in the production of pork. 2) In the market for apples, quantity demanded is given by Q D = 100 − 8P + 0.5Y and quantity supplied by Q
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Unformatted text preview: supplied by Q S = − 10 + 4P − 4W, where P is the price of apples, Y is total consumers’ income and W is the wage rate. Suppose also that initially Y = 300 and W = 10. a) Draw the supply and demand curves and find the equilibrium price and quantity. b) Suppose now that Y goes up to 420. Find the new equilibrium price and quantity. c) Suppose that (in addition to the rise in income) the wage rises to 16. Find the new equilibrium price and quantity. d) The government is concerned that the price of apples is now too high and wants to maintain a price no higher than P = 30. Indicate various ways in which the government can achieve this. Key terms to review and understand: Substitutes; complements Ceteris paribus Elasticity Normal good Tax incidence Tariff...
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