Macro Economics Question Paper
Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7
Review #5.
Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip.
If the current price is $55 per chip, then there will be
(B.) a surplus of memory chips.
Review #8.
Suppose that the government establishes a price ceiling of $3.70 for wheat.
What might prompt the government to establish this price ceiling? Explain carefully the main effects.
Demonstrate answer graphically.
Next, suppose the government establishes a price floor of
$4.60 for wheat.
What will be the main effects of this price floor. Demonstrate answer graphically. Thousands of bushels demanded
Price per bushel
Thousands of …show more content…
bushels supplied
85
$3.40
72
80
$3.70
73
75
$4.00
75
70
$4.30
77
65
$4.60
79
60
$4.90
81
Answer: The government may establish this price ceiling because they feel that any price above $3.70 is unfairly high for buyers.
The effect of this price ceiling is a shortage of 7,000 bushels because buyers will wish to purchase 80,000 bushels at the price of $3.70 but suppliers will only offer 73,000 bushels. The price ceiling will also cause production to increase and competition to decrease. (graph attached separately)
At a price floor of $4.60 there will be a surplus of 14,000 bushels because at this price buyers will only want to purchase 65,000 bushels but sellers will want to sell 79,000 bushels.
Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7
Problem #1 Individual Quantities Demanded
Tex
Price per candy
Dex
Rex
Total Quantity
Demanded
$8
3
1
0
4 …show more content…
$7
8
2
2
12
$6
12
3
4
19
$5
17
4
6
27
$4
23
5
8
36
a.
b.
c.
d.
fill in table for missing value
Dex demands the least at a price of $5 and Tex demands the most at a price of $8.
Tex’s quantity demanded increases the most when the price is lowered from $7 to $6.
If Tex withdrew from the market the demand curve would shift to the left due to the decrease in the total quantity demanded.
If Dex doubled his purchases at each possible price the demand curve would shift to the right due to an increase in total quantity demanded.
e. If at a price of $6, the total quantity demanded increases from 19 to 38, it would be a change in the quantity demanded and the demand curve would shift to the right.
Problem #3
(Refer to table from Review #8)
Bushels demanded
(thousands)
Price per bushel Bushels supplied
(thousands)
Surplus (+) or
Shortage ()
85
$3.40
72
()
80
3.70
73
()
75
4.00
75
equilibrium
70
4.30
77
(+)
65
4.60
79
(+)
Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7
60
4.90
81
(+)
a. The equilibrium price is $4.00, there is neither a shortage nor a surplus at the equilibrium price of $4.00.
b. Graph attached separately
c. At $3.40 there is a shortage of 13,000 bushels
At $4.90 there is a surplus of 21,000 bushels
At 60 cents higher than the equilibrium price ($4.60) there is a surplus of 14,000 bushels At 30 cents lower than the equilibrium price ($3.70) there is a shortage of 7,000 bushels Problem #7 Monthly Rent
Apartments demanded
Apartments supplied
$2,500
10,000
15,000
$2,000
12,500
12,500
$1,500
15,000
10,000
$1,000
17,500
7,500
$500
20,000
5,000
a.
The market equilibrium monthly rental price is $2,000, the market equilibrium of apartment demanded and supplied at this price is 12,500
b. If the government enforces a rent control law that sets the max monthly rent at
$1,500, there will be a shortage of 5,000 apartments because the demand at this price will be 15,000 while the supply is 10,000. Only 10,000 apartments will be rented each month because that is all there is available.
c. If the government enforces a price floor of $2,500 per month there will be a surplus of
5,000 apartments. The amount of apartments that will actually be rented is determined by the demand which is 10,000 apartments.
d. Assuming demand remains unchanged, by how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to
$1,500 per month? 2,500 apartments
Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7
$1,000 per month? 5,000 apartments
$500 per month? 7,500
apartments
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7
Review #5.
Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip.
If the current price is $55 per chip, then there will be
(B.) a surplus of memory chips.
Review #8.
Suppose that the government establishes a price ceiling of $3.70 for wheat.
What might prompt the government to establish this price ceiling? Explain carefully the main effects.
Demonstrate answer graphically.
Next, suppose the government establishes a price floor of
$4.60 for wheat.
What will be the main effects of this price floor. Demonstrate answer graphically. Thousands of bushels demanded
Price per bushel
Thousands of …show more content…
bushels supplied
85
$3.40
72
80
$3.70
73
75
$4.00
75
70
$4.30
77
65
$4.60
79
60
$4.90
81
Answer: The government may establish this price ceiling because they feel that any price above $3.70 is unfairly high for buyers.
The effect of this price ceiling is a shortage of 7,000 bushels because buyers will wish to purchase 80,000 bushels at the price of $3.70 but suppliers will only offer 73,000 bushels. The price ceiling will also cause production to increase and competition to decrease. (graph attached separately)
At a price floor of $4.60 there will be a surplus of 14,000 bushels because at this price buyers will only want to purchase 65,000 bushels but sellers will want to sell 79,000 bushels.
Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7
Problem #1 Individual Quantities Demanded
Tex
Price per candy
Dex
Rex
Total Quantity
Demanded
$8
3
1
0
4 …show more content…
$7
8
2
2
12
$6
12
3
4
19
$5
17
4
6
27
$4
23
5
8
36
a.
b.
c.
d.
fill in table for missing value
Dex demands the least at a price of $5 and Tex demands the most at a price of $8.
Tex’s quantity demanded increases the most when the price is lowered from $7 to $6.
If Tex withdrew from the market the demand curve would shift to the left due to the decrease in the total quantity demanded.
If Dex doubled his purchases at each possible price the demand curve would shift to the right due to an increase in total quantity demanded.
e. If at a price of $6, the total quantity demanded increases from 19 to 38, it would be a change in the quantity demanded and the demand curve would shift to the right.
Problem #3
(Refer to table from Review #8)
Bushels demanded
(thousands)
Price per bushel Bushels supplied
(thousands)
Surplus (+) or
Shortage ()
85
$3.40
72
()
80
3.70
73
()
75
4.00
75
equilibrium
70
4.30
77
(+)
65
4.60
79
(+)
Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7
60
4.90
81
(+)
a. The equilibrium price is $4.00, there is neither a shortage nor a surplus at the equilibrium price of $4.00.
b. Graph attached separately
c. At $3.40 there is a shortage of 13,000 bushels
At $4.90 there is a surplus of 21,000 bushels
At 60 cents higher than the equilibrium price ($4.60) there is a surplus of 14,000 bushels At 30 cents lower than the equilibrium price ($3.70) there is a shortage of 7,000 bushels Problem #7 Monthly Rent
Apartments demanded
Apartments supplied
$2,500
10,000
15,000
$2,000
12,500
12,500
$1,500
15,000
10,000
$1,000
17,500
7,500
$500
20,000
5,000
a.
The market equilibrium monthly rental price is $2,000, the market equilibrium of apartment demanded and supplied at this price is 12,500
b. If the government enforces a rent control law that sets the max monthly rent at
$1,500, there will be a shortage of 5,000 apartments because the demand at this price will be 15,000 while the supply is 10,000. Only 10,000 apartments will be rented each month because that is all there is available.
c. If the government enforces a price floor of $2,500 per month there will be a surplus of
5,000 apartments. The amount of apartments that will actually be rented is determined by the demand which is 10,000 apartments.
d. Assuming demand remains unchanged, by how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to
$1,500 per month? 2,500 apartments
Brooke Foster
Macroeconomics
PG 71 & 72: Review question #5 & #8, problems #1,3, &7
$1,000 per month? 5,000 apartments
$500 per month? 7,500
apartments