answers to homewtest randoork 2 summer 2013

8/9/2019 Answers to Homewtest randoork 2 Summer 2013

1/21

Economics 101

Summer 2013

Answers to Homework #2

Due Tuesday, June 4, 2013

Directions: The homework wi !e coected in a !o" before the ecture $ease %ace your name, TA

name and section num!er on to% o& the homework 'e(i!y) *ake sure you write your name as it a%%ears

on your +D so that you can receie the correct (rade -ate homework wi not !e acce%ted so make %ans

ahead o& time Please show your work..ood uck/

Please realize that you are essentially creating your brand when you submit this homework. Do

you want your homework to convey that you are competent, careful, professional !r, do you want

to convey the image that you are careless, sloppy, and less than professional. "or the rest of your life

you will be creating your brand: please think about what you are saying about yourself when you

do any work for someone else#

1. Each o& the &oowin( situations is inde%endent o& the other situations or each draw a

(ra%h iustratin( the situation and do the reuested anaysisa. onsider the market &or so&t drinks that is initiay in euii!rium with a market

%rice o& $1 and a market uantity o& 1 Su%%ose there is a success&u cam%ai(n

to educate the %u!ic a!out the caoric aues in so&t drinks and their contri!ution

to o!esity At the same time su%%ose that the %rice o& corn syru%, a key in(redient

in many so&t drinks, rises Draw a (ra%h iustratin( the initia euii!rium and the

new euii!rium a&ter these descri!ed chan(es $roide a er!a descri%tion o& the

outcome in this market due to these chan(esb. onsider the market &or mass transit that is initiay in euii!rium with a market

%rice o& $1 and a market uantity o& 1 Su%%ose that a&ter Hurricane Sandy

swe%t throu(h the Atantic states that ew 5ork ity o&&icias mandated that a

cars comin( into ew 5ork ity must hae at east three occu%ants at a times,otherwise indiiduas wishin( to trae in ew 5ork ity woud need to take mass

transit durin( the weeks o& cean6u% &rom this storm Anay7e the im%act o& this

edict &rom city o&&icias on the market &or mass transit $roide a (ra%h o& your

anaysis and aso a er!a descri%tion o& how the euii!rium %rice and

euii!rium uantity res%onded to this edict

1


2/21

c. onsider the market &or (asoine that is initiay in euii!rium with a market

%rice o& $1 and a market uantity o& 1 Su%%ose that there is a war in the *idde

East that disru%ts %etroeum %roduction '%etroeum is a ma8or in%ut to the

%roduction o& (asoine) whie at the same time %eo%e9s incomes in the :nited

States increases Assume (asoine is a norma (ood Draw a (ra%h iustratin( the

initia euii!rium and the new euii!rium a&ter these descri!ed chan(es $roide

a er!a descri%tion o& the outcome in this market due to these chan(esd. onsider the market &or noodes that is initiay in euii!rium with a market %rice

o& $1 and a market uantity o& 1 oodes are an in&erior (ood Su%%ose that

%eo%e9s incomes &a due to the &inancia crisis Draw a (ra%h iustratin( the

initia euii!rium and the new euii!rium a&ter the descri!ed chan(es $roide a

er!a descri%tion o& the outcome in this market due to these chan(es

Answers;

a. The market demand cure &or so&t drinks wi shi&t to the e&t and the marketsu%%y cure wi shi&t to the e&t as we; euii!rium uantity wi decrease and

the euii!rium %rice may rise, &a, or remain the same The (ra%hs !eow

iustrate this idea

b. The market demand cure &or mass transit wi shi&t to the ri(ht and the market

su%%y wi !e unchan(ed; euii!rium uantity wi increase and the euii!rium

%rice wi increase The (ra%h !eow iustrates this idea

2


3/21

c. The market demand cure &or (asoine wi shi&t to the ri(ht whie the market

su%%y cure &or (asoine wi shi&t to the e&t; the euii!rium uantity may rise,

&a or stay the same whie the euii!rium %rice wi increase The (ra%hs !eow

iustrate this idea

d. The market demand cure wi shi&t to the ri(ht and the market su%%y cure wi

!e unchan(ed The euii!rium %rice o& noodes wi increase as wi the

euii!rium uantity o& noodes The (ra%h !eow iustrates this e"am%e

3


4/21

2. $ro!em 2 consists o& two di&&erent scenarios reuirin( you to &ind the market demand

cure

a. Joe, *ary, and Een a hae the same indiidua demand cure &or %eanuts Thisdemand cure is $ < 10 6 They are the ony consumers o& %eanuts in the

marketi. Draw &our (ra%hs hori7ontay ined u% with one another +n the &irst (ra%h

draw Joe9s demand cure, in the second (ra%h draw *ary9s demand cure,

in the third (ra%h draw Een9s demand cure, and in the &ourth (ra%h draw

the market demand cure =e sure to identi&y any interce%t aues as we

as any >kink? aues in the &our (ra%hsii. rom the (ra%hs in 'i) write an euation in so%e interce%t &orm &or the

market demand cure

iii. Show a(e!raicay how you coud &ind the market demand cure

b. $au, hris and Jon hae di&&erent demand cures &or %o%corn $au9s demand

cure is $ < 10 @ hris9 demand cure is $ < B @ and Jon9s demand cure is

$ < C @ They are the ony consumers o& %o%corn in the marketi. Draw &our (ra%hs hori7ontay ined u% with one another +n the &irst (ra%h

draw $au9s demand cure, in the second (ra%h draw hris9 demand cure,

in the third (ra%h draw Jon9s demand cure, and in the &ourth (ra%h draw

the market demand cure =e sure to identi&y any interce%t aues as we

as any >kink? aues in the &our (ra%hs

ii. rom the (ra%hs in 'i) write an euation in so%e interce%t &orm &or themarket demand cure

iii. Show a(e!raicay how you coud &ind the market demand cure

Answer;

4


5/21

a.i.

ii. $ < 10 @ '13)iii. To &ind the euation a(e!raicay, rewrite each market demand cure in "6

interce%t &orm; < 10 @ $ &or Joe, Een and *ary Then, add the

uantities to(ether to (et the market uantity; 8 m e < market

Fr, market < 10 @ $ 10 @ $ 10 @ $ This (ies us market < 30 @ 3$

and soin( &or $ we (et $ < 10 @ '13)market as our market demand

cureb.

i.

ii. The market demand cure this time is com%osed o& three di&&erent

se(ments or %rices !etween B and 10, the demand cure is $ < 10 @

&or %rices !etween C and B, the demand cure is $ < G @ '12) and &or

%rices !etween 0 and C, the demand cure is $ < B @ '13)iii. To &ind the demand cure a(e!raicay &irst rewrite each indiidua

demand cure is "6interce%t &orm; $au9s demand is % < 10 @ $ hris9

demand is c < B @ $ and Jon9s demand is 8 < C @ $ The market demand

&or %rices !etween B and 10 consists ony o& $au9s demand cure; so

market < % < 10 @ $ or the market demand is $ < 10 @ The market

demand &or %rices !etween C and B consists o& $au9s demand cure and

hris9 demand cure; so market < % c Fr, market < 10 @ $ B @5


6/21

$ < 1B @ 2$ ewritin( this we (et $ < G @ '12)market The market

demand &or %rices !etween 0 and C consists o& $au9s demand cure,

hris9 demand cure and Jon9s demand cure; so market < % c

8 Fr, market < 10 @ $ B @ $ C @ $ < 24 @ 3$ ewritin( this we (et

$ < B @ '13)market

3. $ro!em 3 consists o& two di&&erent scenarios reuirin( you to &ind the market su%%y

curea. The market su%%y cure is (ien as $ < 100 2 Seera new &irms enter this

market and now you are tod that at each %rice there are now I0 more units o& the

(ood aaia!e hat is the euation &or the new market su%%y cureKb. irm A9s su%%y cure is $ < 2 and irm =9s su%%y cure is $ < 10 2 There

are ony these two &irms in the marketi. Draw three (ra%hs hori7ontay ined u% with one another +n the &irst

(ra%h draw irm A9s su%%y cure, in the second (ra%h draw irm =9s

su%%y cure, and in the third (ra%h draw the market su%%y cure =e sureto identi&y any interce%t aues as we as any >kink? aues in the three

(ra%hsii. rom the (ra%hs in 'i) write an euation in so%e interce%t &orm &or the

market su%%y cureiii. Show a(e!raicay how you coud &ind the market su%%y cure

Answer;

a. rom the in&ormation (ien we know the market su%%y cure initiay and

can easiy &ind two %oints that sit on this cure; &or e"am%e, '0, 100) and 'I0,

200) !oth sit on this su%%y cure The new su%%y cure has shi&ted to the

ri(ht !y I0 units; this im%ies that the new su%%y cure is %arae to the

initia su%%y cure and there&ore has the same so%e The new su%%y cure

woud there&ore contain the %oints 'I0, 100) and '100, 200) So, the new

su%%y cure is $9 < !9 29 where !9 is the new y6interce%t &or this su%%y

cure To &ind the aue o& !9, use one o& the %oints you know that sit on the

new su%%y cure and this euation; thus, 100 < !9 2'I0) or !9 < 0 The new

su%%y cure is $9 < 29b.

i. w

6


7/21

ii. or %rices !etween 0 and 10, the market su%%y cure is $ < 2 or%rices eua to and (reater than 10, the market su%%y cure is $ < I

iii. To &ind the market su%%y a(e!raicay &irst rewrite the two &irm

su%%y cures in "6interce%t &orm; a < '12)$ and ! < '12)$ @ I

Then, &or %rices ess than 10, the market su%%y cure is 8ust &irm A9s

su%%y cure; thus, the market su%%y is $ < 2 =ut &or %rices eua to

or (reater than 10, market < a ! since !oth &irms are wiin( to

su%%y the (ood to the market i& the %rice is eua to L10 or (reater

than L10 Thus, market < '12)$ '12)$ @ I Fr, market < $ @ I

earran(in( this in y6interce%t &orm we hae $ < I as the marketsu%%y cure

4. onsider the market &or smart %hones +nitiay the market demand &or these %hones is

(ien as $ < I00 @ 00I and the market su%%y &or these %hones is (ien as $ < 00I

or a uestions in this %ro!em make sure you show your work and not 8ust your &ina

answera. .ien this in&ormation, what is the euii!rium %rice and euii!rium uantity o&

smart %hones in this marketKb. hat is the aue o& consumer e"%enditure on smart %hones (ien this initia

in&ormationKc. hat is the aue o& consumer sur%us in the market &or smart %honesKd. hat is the aue o& %roducer sur%us in the market &or smart %honesK

ow, su%%ose that tastes and %re&erences &or smart %hones chan(es so that at eery %rice

an additiona 20,000 %hones are demanded There are no chan(es in the market su%%y

cure

7


8/21

e. .ien this in&ormation, what is the new euii!rium %rice and euii!rium

uantity o& smart %hones in this marketKf. .ien this new in&ormation, what is the aue o& consumer e"%enditure on smart

%hones in this marketKg. hat is the new aue o& consumer sur%us in the market &or smart %hones (ien

this chan(e in tastes and %re&erencesKh. hat is the new aue o& %roducer sur%us in the market &or smart %hones (ien

this chan(e in tastes and %re&erencesK

Answers;a. To &ind the euii!rium uantity set the market demand cure eua to the market

su%%y cure; I00 6 00I < 00I or < I0,000 :se this uantity in either the

demand or su%%y cure to &ind the euii!rium %rice; $ < I00 6 00I'I0,000)

answers to homewtest randoork 2 summer 2013

Documents