Download ECN 111 PRINCIPLES OF MACROECONOMICS HOMEWORK 1

ECN 111
PRINCIPLES OF MACROECONOMICS
HOMEWORK 1 (CHAPTER 3) PROBLEMS
DUE: TUESDAY, SEPTEMBER 09, 2014
To make life easy, here are the rules:
1. You may submit an assignment with one name or with two names.
2. If you and a partner submit the assignment together, you must both be from the
same section. You will both receive credit.
3. You must submit the homework assignment in your correct section.
4. The assignment can either be hand-written or typed on a computer—I don’t care
as long as I can read it.
5. Assignments will be collected at the end of class on the due date. They must be
submitted by the end of the class period. No Late Assignments!
6. Please staple your homework pages together with this page on top.
By signing below, I pledge my word of honor that I have abided by the
Washington College Honor Code while completing this assignment.
NAME # 1: _______________________________________
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PLEASE CIRCLE YOUR SECTION:
10 (111 William Smith Hall; 11:30 – 12:45 PM)
11 (113 William Smith Hall; 1:00 – 2:15 PM)
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1. (a) What is the “Law of Demand”?
(b) In class, I said that demand curves always slope downward because of two specific “effects.” Define
and explain what these two effects are.
2. (a) In class, we discussed five variables that shift the market demand curve for a product. Please
describe these factors, and show graphically how a decrease in each of these factors affects the demand
curve.
(b) Explain the difference between a “change in the quantity demanded” and a “change in demand”.
3. (a) Why does the supply curve slope upward?
(b) In class, we discussed five variables that shift the market supply curve for a product. Please describe
these factors, and show graphically how a decrease in each of these factors affects the supply curve.
(c) Explain the difference between a “change in the quantity supplied” and a “change in supply”.
4. Suppose the quantity supplied of crude oil (QS) and the quantity demanded of crude oil (QD) per month
are as follows:
QD (in 1000s)
100
95
90
85
80
75
Price per barrel
$76.00
$78.00
$80.00
$82.00
$84.00
$86.00
QS (in 1000s)
87
88
90
92
94
97
(a) What is the market-clearing equilibrium price (P*)?
(b) What is the equilibrium quantity demanded at that price (Q*)?
(c) Using the above data, graph the demand curve for oil and the supply curve of oil. Be certain to label
the axes of your graph correctly. Label the equilibrium price “P*” and the equilibrium quantity “Q*”.
(d) Why isn’t $76.00 the equilibrium price in this market? Explain how the market would move toward
the true equilibrium price if this were the case.
(e) Why isn’t $84.00 the equilibrium price in this market? Explain how the market would move toward
the true equilibrium price if this were the case.
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