Macro Economics Question Paper

Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7

Review #5.
Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip.
If the current price is $55 per chip, then there will be
(B.) a surplus of memory chips.

Review #8.
Suppose that the government establishes a price ceiling of $3.70 for wheat.
What might prompt the government to establish this price ceiling? Explain carefully the main effects.
Demonstrate answer graphically.
Next, suppose the government establishes a price floor of
$4.60 for wheat.
What will be the main effects of this price floor. Demonstrate answer graphically. Thousands of bushels demanded

Price per bushel

Thousands of
The effect of this price ceiling is a shortage of 7,000 bushels because buyers will wish to purchase 80,000 bushels at the price of $3.70 but suppliers will only offer 73,000 bushels. The price ceiling will also cause production to increase and competition to decrease. (graph attached separately)
At a price floor of $4.60 there will be a surplus of 14,000 bushels because at this price buyers will only want to purchase 65,000 bushels but sellers will want to sell 79,000 bushels.

Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7

Problem #1 Individual Quantities Demanded

Tex

Price per candy

Dex

Rex

Total Quantity
Demanded

$8

3

1

0

4
The market equilibrium monthly rental price is $2,000, the market equilibrium of apartment demanded and supplied at this price is 12,500
b. If the government enforces a rent control law that sets the max monthly rent at
$1,500, there will be a shortage of 5,000 apartments because the demand at this price will be 15,000 while the supply is 10,000. Only 10,000 apartments will be rented each month because that is all there is available.
c. If the government enforces a price floor of $2,500 per month there will be a surplus of
5,000 apartments. The amount of apartments that will actually be rented is determined by the demand which is 10,000 apartments.
d. Assuming demand remains unchanged, by how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to
$1,500 per month? 2,500 apartments

Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7
$1,000 per month? 5,000 apartments
$500 per month? 7,500