Economics homework problems
Individual HW2
Name:
8-1 Widget Market
The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $30, $29, $20, $16, and $12. Five buyers are willing to buy one widget at the following prices: $10, $12, $20, $24, and $29. What is the equilibrium price and quantity in this market? Equilibrium price is $20 and the quantity is 3 units.
8-4 Candy Bars Market
a. In the accompanying diagram (which represents the market for chocolate candy bars), the initial equilibrium is at the intersection of S1 and D1. Circle the new equilibrium if there is an increase in cocoa prices.
b. In the same diagram, the initial equilibrium is at the intersection of S1 and D1. Circle the new equilibrium if there is rapid economic growth. 8-6 Valentine's Day
On Valentine's Day, the price of roses increases by more than the price of greeting cards. Why? (Hint: Consider what makes roses and cards different and how that difference might affect supply's responsiveness to price.) During Valentine’s day the demand for roses shifts and price becomes more inelastic. This allows the sellers to charge a higher price to high value customers. In the card industry you are dealing with low value customers that if the price increased would find a substitute for the card.
9-1 Faculty Housing Benefits
At a university faculty meeting in 2000, a proposal was made to increase the housing benefits for new faculty to keep pace with the high cost of housing. What will likely be the long-run effect of this proposal? (Hint: Think indifference principle.) If the asset is a mobile one then in the long run it will make the same profit going to housing benefits as it would have in another investment.
9-2 Entry and Elasticity
Suppose that new entry decreased your demand elasticity from –2 to –3 (made demand more elastic). By how much should you adjust your price of $10? Price should be adjusted by -33%. The new
Name:
8-1 Widget Market
The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $30, $29, $20, $16, and $12. Five buyers are willing to buy one widget at the following prices: $10, $12, $20, $24, and $29. What is the equilibrium price and quantity in this market? Equilibrium price is $20 and the quantity is 3 units.
8-4 Candy Bars Market
a. In the accompanying diagram (which represents the market for chocolate candy bars), the initial equilibrium is at the intersection of S1 and D1. Circle the new equilibrium if there is an increase in cocoa prices.
b. In the same diagram, the initial equilibrium is at the intersection of S1 and D1. Circle the new equilibrium if there is rapid economic growth. 8-6 Valentine's Day
On Valentine's Day, the price of roses increases by more than the price of greeting cards. Why? (Hint: Consider what makes roses and cards different and how that difference might affect supply's responsiveness to price.) During Valentine’s day the demand for roses shifts and price becomes more inelastic. This allows the sellers to charge a higher price to high value customers. In the card industry you are dealing with low value customers that if the price increased would find a substitute for the card.
9-1 Faculty Housing Benefits
At a university faculty meeting in 2000, a proposal was made to increase the housing benefits for new faculty to keep pace with the high cost of housing. What will likely be the long-run effect of this proposal? (Hint: Think indifference principle.) If the asset is a mobile one then in the long run it will make the same profit going to housing benefits as it would have in another investment.
9-2 Entry and Elasticity
Suppose that new entry decreased your demand elasticity from –2 to –3 (made demand more elastic). By how much should you adjust your price of $10? Price should be adjusted by -33%. The new