ECO 2302 - Principles of Microeconomics

Fall 2000

Beron

 

Problem Set 2

Due 9/26/00 at the beginning of class

(Bring an extra copy of your problem set answers with you to class)

The following five problems are from the Case and Fair textbook under the Problem Set sections for each chapter, unless otherwise noted.  Make sure your all steps to your answers are clear and legible and that they reflect any comments given below for problems.  Any graphs you must produce should have all axes, curves, and points clearly labeled.  Use only one side of a sheet of paper and make sure your name is on each sheet and that all sheets are stapled together.  Remember you can work together in coming up with solution strategies, but you must write up your work independently.  Also, the length of your answer is not likely to be correlated with how many points you get for the problem.

 

1.                  Problem #1, p. 95.  For each part make sure you carefully label the axes and state what market you are graphing.  (Hint: in (a), unlike the other markets, the market is a labor market with the price being the wage and the quantity being amount of labor employed.)  Carefully show the original D and S curves in each case, which you must label D1 and S1, and then, if you need to draw any new curves, label them with a 2, such as D2 or S2.  You might end up showing no curves changing, one curve changing, both curves changing, or multiple changes.  Make sure all beginning and ending results match up with what the problem says.

2.                  Problem #5, pp. 95-96.  Carefully draw your graph with respect to the information given and then explain what you have shown in your graph as you then answer the question posed.

3.                  Assume that the demand function for Sushi may be written

 

Qd = 180 - 2P

And the supply function may be written

Qs = 30 + 4P,

 

where P is the price of a Sushi piece (in cents).  In your answers you may round your number to the nearest cent if this is appropriate.

 

a.         Derive the demand and supply schedule for the prices 10, 20, 30, and 40.

b.         Carefully graph the supply and demand curves and plot the points from (a) in the graph.

c.         Calculate the equilibrium price and quantity.  Show your work. 

d.         What is the economic situation if the price is equal to 10?  Explain.

e.         What is the economic situation if the price is equal to 30?  Explain.

f.          Assume that an increase in the number of Japanese restaurants makes the Sushi supply function Qs = 80 + 5P.  Carefully graph the old and the new demand and supply curves in a new graph.

g.         Calculate the new equilibrium price and quantity.  Show your work.

4.                  Problem #7, p. 122.  You do not need to use graph paper.  Note, in part (c) you should also add to the graph what the question asks.

5.                  Problem #9, p. 122, parts (a) and (b) only.