Question

1. (0, 5 or 10) The following are the demand and supply schedules for bushels of peaches for one week.

                                                            Quantity               Quantity

                                        Price            Supplied           Demanded

                                         $6                 2,000                  1,200

                                           5                 1,800                  1,400

                                           4                 1,600                  1,600

                                           3                 1,400                  1,800

                                           2                 1,200                  2,000

a. What is the equilibrium price, and what is the equilibrium quantity?

b. If price were temporarily $5, would there be a surplus or a shortage, and how much would that surplus or shortage be?

c. If price were temporarily $2, would there be a surplus or a shortage, and how much would that surplus or shortage be?

2. (0, 5 or 10) Consider the production possibilities curve below. Which point on the graph shows:

a. unemployment of resources: ___.

b. a level of output unachievable in the current time period, but possible with economic growth: ___

c. a level of output showing increased capital goods and fewer consumer goods (in comparison with Point C): ___.

3. (0, 5 or 10) The following is a production possibilities schedule for prisons and public education.

               Alternative                       Prisons             Public Education          

                       A                                 160                               0

                       B                                  120                             20

                       C                                   80                             40

                       D                                   40                             60

                       E                                     0                             80

   Graph the production possibilities curve (You do not have to submit the graph). Then answer the following questions:

a. What is the opportunity cost of the first 20 units of public education?

b. What is the opportunity cost of the last 20 units (from 60 to 80) of education?

c. Why cannot the economy produce 60 units of education and 80 units of prisons?

4. (0, 5, or 10)

a) Who benefits from rent ceilings?

b) Who suffers as a result of rent ceilings?

c) What are the long-term effects of rent ceilings?

5. (0, 5, or 10)

a) How can landlords cheat on rent ceilings?

b) How can tenants cheat on rent ceilings?

c) Do you think the rent ceilings might lead to more discrimination against certain groups?

                                                                                                                                      

6. (0, 5, or 10) Suppose the minimum wage were raised to $15 an hour. Compare the impact that would have on casual restaurants where you go for an inexpensive lunch or dinner as opposed to the impact on upscale (or expensive) restaurants. Why would you expect the impacts to be different?

7. (0 or 5) On the issues of minimum wage and rent control, do you consider yourself an economic liberal (support government involvement) or an economic conservative (the government should not be involved)? Where would you place yourself on this scale (pick a number from 1 to 11)?

1	2	3	4	5	6	7	8	9	10	11
Extreme liberal					Middle of the road					Extreme Conservative

Answer 1

Sol 1 :

a) Equilibrium is the point where Quantity supplied and quantity demanded are equal to each other.

Equilibrium price is the price correspinding to the point where Demand and supply are equal to each other.

And , equilibrium quantity is the quantity which is corresponding to point where demand and supply are equal to each other.

So , Equilibrium Price = $4

Equilibrium Quantity = 1600 units

As , Quantity supplied and quantity demanded are equal to each other (i.e 1600)

b) if the price is $5 , then there would be surplus because price is higher than before and quantityd emanded will be less because of higher prices.

Quantity demanded (at $5) = 1400

Quantity supplied (at $5) = 1800

Surplus = Supply - demand

= 1800 - 1400

= 400 units

c)if the price is $2 , then there would be shortages becuase of lower prices demand will be higher and supply will be less.

So ,

Quantity demanded (at $2) = 2000

Quantity supplied (at $2) = 1200

So , shortages = Demand - Supplied

= 2000 - 1200

= 800