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Principles of Economics
Student Name:
EC 201
Section:
California State Polytechnic University, Pomona
Dr. Bresnock
Computer Project (100 points)
Please contain your answers to the spaces provided. Do not attach printout or additional pages. All
questions pertain to the Markets module in the SimEcon software package. Make sure you have
read the “Markets Manual” and “SimEcon Operation Instructions” materials that may be found
in the class website prior to beginning the assignment. For many of the assignment's questions, it
will be necessary to refer to those instructions. For many of the assignment's questions, it will be
necessary to refer to your text -- particularly sections of Chapters 3, 7, and Chapter 20. (NO.
Chapter 20 will not be covered on the final!)
Due Date:
TBA
To begin the assignment, launch the Markets module and note the "original conditions" which are
the beginning values for each supply and demand variable. Write these values down for future
reference. Now, click on "Continue" in the tool bar at the top of the screen. Write down the initial
equilibrium values for the price, Pe, and quantity, Qe, of wheat. Now select "Disturb the Market"
from the tool bar.
(1)
With respect to the wheat market, if income is increased, explain what will happen to each
of the following. (Use , , or stays the same, for your answers.)
a)
b)
c)
d)
e)
f)
g)
(2)
Demand?
.
Quantity demanded?
.
Supply?
.
Quantity supplied?
.
Equilibrium price?
.
Equilibrium quantity?
.
From this market disturbance, we know that wheat is what type of good?
. Why?
With respect to the wheat market, if the price of butter is decreased, explain what happens
to each of the following. (Use , , or stays the same, for your answers.)
a)
b)
c)
d)
e)
f)
h)
Demand?
.
Quantity demanded?
.
Supply?
.
Quantity supplied?
.
Equilibrium price?
.
Equilibrium quantity?
.
From this market disturbance, we know that wheat is what type of good?
. Why?
EC 201
Computer Project
(3)
With respect to the wheat market, if the price of corn is increased, explain what happens to
each of the following. (Use , , or stays the same, for your answers.)
a)
b)
c)
d)
e)
f)
i)
(4)
Page 2
Demand?
.
Quantity demanded?
.
Supply?
.
Quantity supplied?
.
Equilibrium price?
.
Equilibrium quantity?
.
From this market disturbance, we know that wheat is what type of good?
. Why?
What is the total revenue (TR) for the initial wheat market equilibrium?
.
a)
If the seed cost increases from $10 to $12, what is the new total revenue?
. Compared to the initial equilibrium, the total revenue has
(ed, ed, stayed the same). Why? (Note: Your answer must contain a complete
verbal explanation and mathematical proof of your answer. Include the completely
specified formula that you used in order to receive full credit.)
b)
If the price of butter decreases from $4 to $1, what is the new total revenue?
. Compared to the initial equilibrium, the total revenue has
(ed, ed, stayed the same). Use the initial and new wheat market equilibria to
calculate the price elasticity below. (Include the completely specified formula that
you used in order to receive full credit.)
Offer a complete verbal interpretation of your price elasticity in (b) below.
EC 201
Computer Project
Page 3
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Now, restart the "Markets Module".
~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*~*
Choose "Continue" on the "Initial Conditions" screen. Now select "Regulate the Market". Select
"Control Price" and "Continue". Then, select "Price Ceiling".
(5)
Put in a price ceiling of $15. Draw a graph of your results below.
As a result of this price ceiling, there will be a
(surplus, shortage,
equilibrium) in the wheat market of
. Show this result in the graph above. Write
the mathematical proof for your answer below. (Hint: See the Markets Manual for
complete explanations of the supply and demand for wheat.)
As a result of the price ceiling, it is likely that an illegal market for wheat will develop.
Why?
(6)
Now choose a price floor (other than $30 and $40, and use whole #s). Write your price
floor here:
. Draw a graph of your results below.
EC 201
Computer Project
Page 4
As a result of your price floor, there will be a
(shortage, surplus, equilibrium) in the
wheat market. Show this result in the graph on the bottom of the last page.
What is the price elasticity of demand between the initial equilibrium price and the price
floor?
. Show all work below and include the formula used.
Why does farmers’ revenue go up when a price floor is imposed?
(6)
Now choose “Control Production”. Choose one quantity above and one quantity below the
initial equilibrium, and fill in the following table. (Choose whole quantity #s only.)
Quantity
Price
869.59 $23.39
Farmers’ Income (or TR)
$20,339.71
Explain your results below.
Farm Vote (%)
Non-Farm Vote (%)
49.94%
51.31%