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In: Economics

House prices in Southern California reached a record median price of $505,000 in 2007 (nominal dollars)....

  1. House prices in Southern California reached a record median price of $505,000 in 2007 (nominal dollars). In 2018 the median price was $507,500 (again nominal dollars), surpassing the previous record. Suppose the CPI in 2007 was 217.39 and 256.21 in 2018. Which year had the higher real price in 2018 dollars and by how much?

2. Let the market demand for a product be described by P = 40 - 0.02*Q.  The market supply curve is P = 20 + 0.03*Q.

(a) Calculate the market equilibrium price and output under perfect competition.

(b) Determine consumer’s surplus at the market equilibrium.

(c) Determine producer’s surplus at the market equilibrium.

(d) Determine the arc elasticity of demand for a four dollar ($4.00) increase in the market equilibrium price (i.e., the price increases four dollars from the price you determined in part a).

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Expert Solution

Rahul Sunny answered 2 years ago
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