Download Markets--NEW - Cal Poly Pomona

EC 201
Cal Poly Pomona
Dr. Bresnock
Winter, 2013
Student Name:
Markets Module Assignment (50 points)
Due: Feb. 13
Please limit your answers to the spaces provided. If necessary, write on the back of the page. Do
not attach printout or additional pages. All questions pertain to the Markets module in
SimEcon. Make sure you have read the “Markets Manual” which may be found on the
ClassWeb site 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. Please use this website to obtain the module:
http://class-ms-web.class.csupomona.edu/ or
http://128.97.186.84/
To begin the exercise, launch the Markets module and note the "Initial Conditions" which are the
beginning (or ceteris paribus) values for each supply and demand variable. Write these values
down for future reference. Now, click "Continue". Write down the initial equilibrium values for
the price, PE, and quantity, QE, of wheat. Now select "Disturb Market".
(1)
With respect to the wheat market, if the number of farms is increased to 1,500, explain
what will happen to each of the following. (Use increase (↑), decrease (↓), of stays the
same, for your answers.)
(a)
(b)
(c)
(d)
(e)
(f)
(2)
Demand?
Quantity Demanded?
Supply?
Quantity Supplied?
Equilibrium Price?
Equilibrium Quantity?
________________________________.
________________________________.
________________________________.
________________________________.
________________________________.
_____________________________ ___.
Sketch the graph from (1) below and clearly indicate the changes that result from this
market disturbance.
EC 201
Markets Module Assignment
Page 2
At the original equilibrium price, after the disturbance there is a temporary
(shortage, surplus) of wheat. This market imbalance causes the
(increase, decrease, no change) in the equilibrium price of wheat. Clearly indicate this
imbalance in your graph on the previous page.
(3)
In this model of the wheat market, a decrease in the price of butter leads to ________ (an
increase, a decrease, no change) in _____________ (demand, supply, quantity demanded,
quantity supplied) for wheat. Thus, wheat is a/an ________ (complement, substitute,
independent) good.
(4)
If the seed cost increases from 10 to 18, what is the new total revenue? $________.
Compared to the initial equilibrium, the total revenue has ________ (increased,
decreased, stayed the same). Show your calculations below.
(5)
What is the total revenue for the wheat farmers when the price of corn is $2? $________
If the price of corn rises to $15, what is the change in total revenue to the wheat farmers?
$________. Show your calculations below.
(6)
Use the wheat market equilibria from (5) (first when the price of corn is $2, second when
the price of corn is $15 to calculate the price elasticity of wheat below. (Include the
completely specified formula that you used in order to receive full credit below. You
must also include a complete interpretation of your price elasticity coefficient to receive
full credit.)
(7)
If the amount of rainfall decreases from 10 to 5 inches, what is the new total revenue?
$_______
_. Compared to the initial equilibrium, the total revenue has ___
_____ (increased, decreased, stayed the same). Why? (Hint: Show how elasticity ties in
here? Calculate and give a complete interpretation of your price elasticity on the top of
the next page.)
EC 201
Markets Module Assignment
Page 3
******************************************************************************
Now click “Menu” to restart the Markets module.
******************************************************************************
Choose “Continue” on the “Initial Conditions” screen then “Regulate Market”, “Control Price”,
“Continue”, and “Impose Price Ceiling”.
(8)
Enter a price ceiling of $12 and “Continue”.
(a)
As a result of this price ceiling, there will be a ________ (surplus, shortage,
equilibrium) in the wheat market of
. Show this result in a sketched
graph below. Write your mathematical proof for this answer below your graph.
(Hint: See the Markets Manual for the complete equations for the demand for
wheat.)
EC 201
Markets Module Assignment
(9)
Page 4
(b)
As a result of the price ceiling there will be an
(under, over) allocation
of resources in the wheat market of
units. Indicate this amount on the
graph at the bottom of the last page. (Note: Please use the results screen values
for the price ceiling to answer this question.)
(c)
As a result of the price ceiling, is it likely that an illegal market for wheat will
develop?
(Yes, No) Why?
Now choose “Change Regulation”, “Control Price”, “Continue”, and “Impose Price
Floor”. Enter a price floor of $42.
(d)
As a result of your price floor, there will be a ________ (shortage, surplus,
equilibrium) in the wheat market of
units.
Show this result in a
sketched graph below.
(e)
As a result of your price floor, there will be an
(over, under) allocation
of resources in the wheat market of
units. Show this result in the graph
for 9(a) above.
(c)
What is the price elasticity of supply between the initial equilibrium and the price
floor? __
___. Show all work below, including the formula used, and a
complete interpretation of your elasticity coefficient.