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Chapter 2 Homework Answers -- 110 points
Pages 80 - 82:
#2
Qd = 8,000 – 16P + 0.75M + 30PR
A. M = $30,000 and PR = $50
Qd = 32,000 – 16P
B. The intercept is the estimated quantity demanded if the price were to be zero (note that
because we have combined other parameter and variable quantities into the intercept we
cannot say that it represents the quantity demanded if all variables were valued at zero). The
slope parameter (-16) tells us that for every $1 increase in price, quantity demanded will
decrease by 16 units.
C.
Demand
2500
Price ($)
2000
1500
1000
500
0
0
5000
10000
15000
20000
25000
30000
35000
Quantity
D. When P = $1,000 Qd = 16,000
When P = $1,500 Qd = 8,000
E. P = 2,000 – (1/16)Qd,
If Qd = 24,000 then P = $500 which means the marginal value of the 24,000th unit is equal to
$500.
#9
QS = 19 + 20PX – 10PI + 6T – 32Pr - 20Pe +5F
A. PI = 8, T = 4, Pr = 4, Pe = 5, and F=47
Qs = -30 + 20PX
1
Supply
8
7
Price ($)
6
5
4
3
2
1
0
0
20
40
60
80
100
120
140
Quantity
B. If PI rises from 8 to 9 then
Qs = -40 + 20PX
Supply
8
7
Price ($)
6
5
4
old
3
new
2
1
0
0
20
40
60
80
100
120
140
Quantity
C.
The coefficient on the related good’s price (Pr) is -32, which means for every dollar increase in
the price of the related good production of the good we are interested in decreases by 32 units.
Logically, the two goods must be substitutes in production.
D. 19 = intercept term: quantity supplied if all other variables are zero (this normally has little
economic content because we are unlikely to see a situation in which all other variables take on
a value of zero).
+20 = Slope parameter on price: how much does quantity supplied increase when price
increases by $1.
-10 = slope parameters on input prices: how much does quantity supplied decrease when input
prices increase by $1.
2
+6: slope parameter on technology: If technology improves by one unit then output will increase
by 6 units.
-32 = Slope parameter on price of related good. If the price of the related good increases by $1,
production of the good of interest will decrease by 32 units.
-20 = Slope parameter on price expectations. For every $1 increase in future expected prices,
current production will decrease by 20 units.
5 = Slope parameter on industry capacity. For every on unit increase in the measure of capacity
utilization industry output will increase by 5 units.
#12
A.
B.
C.
D.
Quantity supplied, 15,000, fall
Quantity demanded, 78,000, rise
$550
60,000
#13
Qd = 50 – 8P
Qs = -17.5 + 10P
A. Equilibrium P: 50 – 8P = -17.5 + 10P  67.5 = 18P  P=3.75
Equilibrium Q: 50 – 8*3.75 = 20; -17.5 + 10*3.75 = 20
B. If P = 2.75 Qd = 28, QS = 10: Shortage of 18 units will put upward pressure on price.
C. If P = 4.25 Qd = 16, QS = 25: Excess quantity supplied of 9 units will put downward pressure on
price.
D. Qd = 59 – 8P
Qs = -17.5 + 10P
Equilibrium P: 59 – 8P = -17.5 + 10P  76.5 = 18P  P=4.25
Equilibrium Q: 59 – 8*4.25 = 25; -17.5 + 10*4.25 = 25
E. Qd = 50 – 8P
Qs = -40 + 10P
Equilibrium P: 50 – 8P = -40 + 10P  90 = 18P  P=5
Equilibrium Q: 50 – 8*5 = 10; -40 + 10*5 = 10
Page 85: #2
A. A freeze will shift supply to the left, increase price and decrease equilibrium quantity.
3
Florida Freeze
12
10
Prce($)
8
6
Qs
4
Qd
New
2
0
0
10
20
30
40
50
Quantity
B. New technology will shift the supply to the right, decrease price and increase equilibrium
quantity.
New Technology
12
10
Prce($)
8
6
Qs
4
Qd
New
2
0
0
20
40
60
80
100
Quantity
C. Health news will shift the demand to the right, increase price and increase equilibrium quantity:
4
Health News
12
10
Prce($)
8
6
Qs
4
Qd
New
2
0
0
10
20
30
40
50
Quantity
D. The decrease in price of Florida Grapefruit will shift demand to the left (it would take too long
for supply to shift to the right):
Grapefruit Prices Fall
12
10
Prce($)
8
6
Qs
4
Qd
New
2
0
0
10
20
30
Quantity
5
40
50