HW3_Solutions

HW3_Solutions - HOMEWORK ASSIGNMENT # 3 Q1. Answers: a) b)...

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HOMEWORK ASSIGNMENT # 3 Q1. Answers: a) 2 b) 4 c) Greater d) ½ (4-2)(50)=50 e) CS = ½ (150)(6-3)=225 f) PS = ½ (3)(150) = 225 g) TS = CS + PS = 450 h) Producer surplus is higher, DWL is zero Q2. The price of gasoline has declined since April. Using the standard supply and demand graphs, explain whether each of the following changes can explain such a decline in price. a. The improving labor market has increased income and gasoline is a normal good. b. Many people take long car trips during the summer. c. Increased risk in Iraq, Saudi Arabia and Venezuela (all oil exporting countries) d. The high price of gasoline in April reduced demand.
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e. Oil refinery plants that were being serviced during the winter were back in operation. f. SUVs have become less popular among “soccer moms”*. Answers: a. If income increases and gasoline is a normal good, we would expect that demand would increase, which would increase the price. On the graph, this would be b. If many people take long car trips over the summer, we would expect them to demand
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HW3_Solutions - HOMEWORK ASSIGNMENT # 3 Q1. Answers: a) b)...

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