problem set 1

Topics: Supply and demand, Elasticity, Demand curve Pages: 4 (857 words) Published: October 22, 2014
Economics 200: Principles of Microeconomics Due (in class): Monday, Oct. 13 Professor MacDonald
Your Name: _______________________________
Problem Set 1
Question 1 (2 points): Explain how each of the following events affects the equilibrium price and quantity in the associated market. Hint: in each case, either the supply or the demand curve shifts, but not both. Explain your answer in one sentence and draw a graph to accompany your answer, being sure to correctly label all parts of the graph.

Event 1: A drought leads to a shortage of agricultural products such as apples, increasing the price of apples. Market: apple juice.
Event 2: A rise in oil prices increases the price of gas. Market: automobiles. Event 3: The price of a can of Coca Cola increases. Market: cans of Pepsi. Event 4: A new study is published, declaring that hazelnuts can help prevent a certain form of cancer. Market: hazelnuts.

Question 2 (2 points): Given the following data for individuals and firms, draw the market demand curve and market supply curve for Blue Ray movies. Draw only the market demand and supply curves, not the individual demand and supply curves. After you have drawn the curves, label the equilibrium and then answer the questions below:

Price $8.00 $8.50 $9.00 $9.50 $10.00 $10.50
Quantity Demanded (units per week)
Mark 10 8 6 5 2 1
Lynn 8 7 6 6 2 1
Jason 5 4 3 2 1 0
Erin 6 5 3 2 0 0
Quantity Supplied (units per week)
Firm A 0 1 2 3 6 7
Firm B 2 3 4 5 5 6
Firm C 0 1 2 3 7 8
Firm D 1 3 4 4 8 9
a) What is the equilibrium price and quantity? Label them “P” and “Q”. b) If consumers initially came into this market facing a price of $9.00, would there be a shortage orsurplus (hint: a shortage is a case where demand exceeds supply; a surplus is a case where supply exceeds demand)? Why?

c) Calculate what the shortage or surplus would be in this case. d) From that initial price of $9.00, how would the price change to reach equilibrium (i.e., would it move upward or...
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