2.Graph the AE equation both before and after the shock on one graph, and also plot equilibrium output Y both before and after the shock.Are your results above consistent with the new economy?A) Yes, wealth in the stock market, consumer confidence, cash flow and the trade deficit all increased and animal spirits are positive. This is consistent with the new economy.B) No, wealth in the stock market, consumer confidence, cash flow and the trade deficit all increased and animal spirits are positive. This is not consistent with the new economy.Points Earned:3.0/3.0Correct Answer(s):A12.Part 2 (9 questions at 3 points each for 27 points total) Pretend that you have a lemonade stand and that the demand for lemonade in your neighborhood is estimated to be: Q = 60 - 100 PJust like in the lecture, you get all the materials to make the lemonade for free so we assumethat the costs of production are zero. Your goal, your objective, is to maximize profits which is the same as maximizing total revenue given the zero cost assumption.The profit (revenue) maximizing price is cents. (don’t use a decimal point in this answer!)Points Earned:3.0/3.0Correct Answer(s):3030

13.The profit maximizing quantity (in cups) of lemonade is .Points Earned:3.0/3.0Correct Answer(s):3014.The corresponding maximum profit is $Points Earned:3.0/3.0Correct Answer(s):9, 9.0, 9.0015.Suppose that there was a demand shock so that the new estimated demand function for lemonade in your neighborhood changes to:Q = 100 - 100 PA demand curve would change like this due to:A) a tax increaseB) a tax decreasePoints Earned:3.0/3.0Correct Answer(s):B16.The new profit (revenue) maximizing price is cents. (don’t use a decimal point in this answer!)Points Earned:3.0/3.0309.0050

Correct Answer(s):5017.The new profit maximizing quantity (in cups) of lemonade is .Points Earned:3.0/3.0Correct Answer(s):5018.The new corresponding maximum profit is $Points Earned:3.0/3.0Correct Answer(s):25, 25.0, 25.0019.Imagine that you kept the “sticky” lemonade price even though demand has changed (use the price you found in #12). What is the quantity sold now? Points Earned:3.0/3.0Correct Answer(s):7020.NOTE:There is no graphing component to be collected for this homework. However, you should be comfortable creating two separate graphs from the above questions in part 2. Youshould be able to:1.Draw a demand curve graph showing both the original and new demand curves. Label equilibrium price and quantity in in both cases.2.Draw the total revenue curves for both cases in a graph directly below the demand curve graph (remember the horizontal axes for the demand curve graph and the total revenue graph are the same).5025.0070

Again imagine that you kept the “sticky” lemonade price even though demand has changed (use the price you found in #12). What is the profit now? $Feedback:The excel table below shows solutions for all of part 2.

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- Macroeconomics, Inflation, Supply And Demand