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ECO_11–Monday,July9thProblemSet1:DuetodayatstartoflectureQuiz1:WednesdayProblemSet2:DueMonday,July16th(availableonmoodle)Officehours:TuesdaysandWednesday3:00-4:00pmEmail:roger.white@fandm.eduToday…Demandandsupplyapplications(Ch.4)Demand,marginalutilityandtotalutility(Ch.4)Elasticity(Ch.5)Tuesday:Continuewithelasticity(Ch.5);(perhaps,iftimepermits)householdbehaviorandconsumerchoice(Ch.6)_____________________________________________________________DEMANDANDSUPPLYAPPLICATIONSI.Reviewfromlastweek:ExamplesofcomparativestaticsA.Givenaninitialequilibrium,allowforanincreaseinconsumerincome1.Showthenewequilibriumpriceandquantity.2.Howareconsumersurplusandproducersurplusaffected?B.Givenaninitialequilibrium,allowforadecreaseinthepriceofacomplementarygood1.Showthenewequilibriumpriceandquantity.2.Howareconsumersurplusandproducersurplusaffected?C.Givenaninitialequilibrium,allowforanimprovementintechnology1.Showthenewequilibriumpriceandquantity.2.Howareconsumersurplusandproducersurplusaffected?D.Givenaninitialequilibrium,allowforanincreaseinlaborcosts1.Showthenewequilibriumpriceandquantity.2.Howareconsumersurplusandproducersurplusaffected?II.New(slightlymoreadvanced)examplesofcomparativestaticsGivenD:P=600–15qdandS:P=50+10qs,solveforequilibrium.600–15q=50+10q550=25q;thus,q*=22andp*=270Solvethenforthevalueofconsumersurplusandthevalueofproducersurplus.CS=((600–270)(22))/2=3,630PS=(270–50)(22))/2=2,420AssumethatthereisanincreaseinthenumberofconsumersinthemarketsuchthatnowD:P=720–15qd.WithSremainingthesame,solveforthenewequilibrium,consumersurplusandproducersurplusvalues.720–15q=50+10q670=25q;thus,q*=26.8andp*=318CS=((720–318)(26.8))/2=5,386.80PS=(318–50)(26.8))/2=3,591.20Now,assumethegovernmentimposesapriceceilingof300.Calculatetheresultingmarketsurplusormarketshortage,thenewlevelsofconsumersurplusandproducersurplusandthecorrespondingvalueofthedeadweightloss.Ifpc=300,thensinceD:P=720–15qdwehavethat300=720–15qd;thus,qd=28.Similar
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