Download Answers Chapter 4

Problem Set 2 Answers Part 2: answers to odd numbered text problems
1. (a)
(b)
S1
P
S2
$55
$42
D
0
Q
100-pound barrels of cranberries
(c)
(d)
P
P2
S
P1
0 Q
s
D
Q Qd
Bread
Q
Answers Chapter 4
The answers to even numbered exercises appear in the back of your textbook.
Chapter 4
3.
P
S
P*
Px
0
Ticket price
D
Excess
demand
Q
The diagram shows that some people are willing
to pay a very high price (even higher than P*) for
the tickets. Some nonprice rationing system was
used to allocate the tickets to people willing to
pay as little as Px . What a scalper does is pay
those near Px more than they paid for the tickets
and then sells the tickets to someone nearer or
even above P*. Since both the buyers and sellers
engage in the trade voluntarily, both are better
off and the exchange is efficient.
#5 Disagree. This statement implies that the demand for apartments increased due to an
increase in price, which would be a violation of the law of demand. Demand increased
due to increases in income and population growth. This increase in demand caused the
price of an apartment (rent) to increase. In general, an increase in demand (demand curve
shifts right) causes an increase in price. But an increase in price causes a decrease in
quantity demanded (movement along the demand curve).
7. (a)
(b)
W
unemployment
= excess supply
—
S
W
D
0
LD
LS
L
9. (a) Using demand and supply data for the United States only, equilibrium price is $36 and
equilibrium quantity is 12 million barrels.
(b) With a price ceiling of $34, quantity demanded equals 13 million barrels, while quantity
supplied equals 10 million barrels. There is an excess demand of 3 million barrels.
(c) Quantity supplied will determine the quantity purchased. In a market system, no one can
be forced to buy or sell more than he or she wants to. Under conditions of excess demand,
suppliers will supply only as much as they want, and some consumer demand will go
unsatisfied.
# 11.
a) Between points A and B, ED = 66.67%/-18.18% = -3.6667 (elastic)
Between points C and D, ED = 28..57%/-28.57% = -1 (unitary elastic)
Between points E and F, ED = 18.18%/-66.67% = -0.273 (inelastic)
This example shows how elasticity varies along a linear demand curve.
b) When P = $50, Qd = 200  TR = 10,000. If Price increases to $60  TR falls to
60x100 = $6,000. This is always true of elastic demand: if price increases, TR will fall
because there is a relatively large drop in quantity demanded (quantity force is stronger).
When P = $30, Qd = 400  TR = 12,000. If Price increases to $40  TR doesn’t
change because $40x300 = $12,000. This is always true of unitary elastic demand: if
price increases, TR will not change because the corresponding drop in quantity demanded
completely offsets the increase in price (price force and quantity force are equal).
When P = $10, Qd = 600  TR = $6,000. If Price increases to $20  TR increases
change because $20x500 = $10,000. This is always true of inelastic demand: if price
increases, TR will increase because the corresponding drop in quantity demanded is less
than the increase in price (price force is stronger).
c) see discuss in b)
# 13. Use the mid-point formula to calculate the %Q and the %P
a) Ed = %Q/ %P = +28.6%/-50.0% = -0.57
b) Ed = %Q/ %P = -15.4%/+23.7% = -0.65
c) Ed = %Q/ %P = +66.7%/-97.2% = -0.69
d) Ed = %Q/ %P = -28.6%/+28.6% = -1.0
# 15.
a) no, demand is elastic (-1.2, meaning a 10% increase in prices will cause a 12%
decrease in quantity demanded). If they raise prices, total revenue will fall because the
quantity force is stronger than the price force.
b) no, demand is inelastic (-0.5, meaning a 20% decrease in price causes only a 10%
increase in quantity demanded). If they cut prices, total revenue will fall because the
price force is stronger than the price force.