PS1_solutions - Economics 401 Winter 2008 Problem Set 1...

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Economics 401 Winter 2008 Problem Set 1 Solutions 1. (Perloff Chapter 2 #2). The demand curve shifts to the left from D1 to D2 by 30% at initial equilibrium price p0, which is the distance between Q0 and Q4. For supply curve S1, the price drops from p0 to p2, which is a larger decrease than for the flatter supply curve S2, where price drops to p1. For both supply curves, the equilibrium quantity changes less than 30% as well. 2. (Perloff Chapter 2 #7) When the ban on legal imports went into effect, the demand for exports to the US fell to zero. Given that the U.S. represents 60% of the market, it would cause a dramatic drop in prices. If the drop in prices made caviar harvesting unprofitable, and fishermen turned to other activities, it would help the fish population. If a black market developed, demand would not fall to zero, and caviar harvesting may continue at a reduced level. If exporters simply shipped the caviar to other countries, but at lower prices, it could make problems with the sturgeon population even worse as exporters increase output to maintain income levels.
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This note was uploaded on 04/09/2008 for the course ECON 401 taught by Professor Kuhn during the Winter '08 term at University of Michigan.

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PS1_solutions - Economics 401 Winter 2008 Problem Set 1...

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