Assignment _2

# Assignment _2 - University of Southern California...

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University of Southern California Department of Economics ECON 205 Principles of Macroeconomics Prof. Safarzadeh Student Name : ________________ Assignment # 2 Discussion / TA : _______________ I- Market analysis: In each problem below, you are to illustrate the market for textile with the appropriately shaped standard demand and supply curves. In each case, draw the shift in the demand and supply which result from the actions taken in the market or changes in related variables. Indicate in the space provided whether each variable and demand and supply will increase (+), decrease (-), remain unchanged (0), or have ambiguous sign (?). Please, number the curves so that the direction of each shift will be clear. Mark the original equilibrium by E 1 and the final equilibrium by E 2. Also, assume that none of the curves are perfectly inelastic or perfectly elastic i.e., the standard demand-supply model. Textile is assumed to be a normal good. 1. The economy is in expansion and GDP is increasing. P | Demand : ...... | Supply : ...... | Equilibrium Quantity : ...... | Equilibrium Price : ...... | | |____________________________ Q 2. The government levies new sales taxes on textile and collects it from the producers. P | Demand : ...... | Supply : ...... | Equilibrium Quantity : ...... | Equilibrium Price : ...... | | |____________________________ Q Page 1 of 9

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3. Price of cotton (input in production of textile) is decreasing. P | Demand : ...... | Supply : ...... | Equilibrium Quantity : ...... | Equilibrium Price : ...... | | |____________________________ Q 4. GDP is rising and price of cotton in declining. P | Demand : ...... | Supply : ...... | Equilibrium Quantity : ...... | Equilibrium Price : ...... | | |____________________________ Q 5. GDP is rising and price of cotton is rising. P | Demand : ...... | Supply : ...... | Equilibrium Quantity : ...... | Equilibrium Price : ...... | |____________________________ Q 6. There is expectations of higher prices for textile products. P | Demand : ...... | Supply : ...... | Equilibrium Quantity : ...... | Equilibrium Price : ...... | | |____________________________ Q Page 2 of 9
2- Market demand and supply functions for a product are given as Qd = 100 - 2P and Qs = .5P respectively, where Qd is quantity demanded, Qs is quantity supplied and P is the market price. a. Equilibrium price and quantity for the product are \$ _______ and _______ units, respectively. b. At the market price of \$50.00, quantity demanded is ________ units, quantity supplied is ______ units and there is a ___________ of _____________ units of the good in the market. c. At the market price of \$30.00, quantity demanded is ________ units, quantity supplied is ______ units and there is a ___________ of ___________ units of the good in the market. d. Graph the demand and supply on a co-ordinate system below. Show the equilibrium and market conditions when prices are \$30.00 and \$50.00. 3. The market demand and supply for a product is presented by the graph below, where the market is at the initial equilibrium at E 1 . Answer questions below using the graph.

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