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ECO 201 Problem Set 2

This document contains a problem set with multiple questions related to concepts in economics including market demand and supply functions, price elasticity, consumer and producer surplus, cross price elasticity, government intervention in markets, and consequences of rent control and minimum wage laws. Specifically, it asks the reader to calculate price elasticities at an equilibrium point, discuss the impact of government price controls, estimate consumer and producer surplus, calculate a cross price elasticity of demand, discuss consequences of government agricultural price intervention, explain why electronic good prices fall over time, and discuss short-run and long-run impacts of an OPEC output cut on the world oil market. It also asks the reader to discuss consequences of rent control and minimum wage laws.

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Pushp Toshniwal
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107 views1 page

ECO 201 Problem Set 2

This document contains a problem set with multiple questions related to concepts in economics including market demand and supply functions, price elasticity, consumer and producer surplus, cross price elasticity, government intervention in markets, and consequences of rent control and minimum wage laws. Specifically, it asks the reader to calculate price elasticities at an equilibrium point, discuss the impact of government price controls, estimate consumer and producer surplus, calculate a cross price elasticity of demand, discuss consequences of government agricultural price intervention, explain why electronic good prices fall over time, and discuss short-run and long-run impacts of an OPEC output cut on the world oil market. It also asks the reader to discuss consequences of rent control and minimum wage laws.

Uploaded by

Pushp Toshniwal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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ECO 201

Problem Set 2
1. Consider the following market demand and supply functions, respectively:
P = 100 and P = ! where P is the price of the good and is the amount
demanded and supplied.
"a# $s the market demand price elastic at the e%uili&rium point' (hat is the price
elasticity of supply' )uppose government decides to control the price of the
product at *s +0 &ecause it feels that the free market price is too high. ,iscuss.
"&# $s the market sta&le'
"c# -ow much is the market consumer surplus' -ow much is the market producer
surplus'
.. Consider the following information to estimate the linear demand function.
/%uili&rium price and %uantity are respectively, P = *s !00, 0 = 1000 tons. 1nd price
elasticity of demand is 20.3.
4. Consider the following price demand com&inations &etween two goods and 5:
P "# : . ! in rupees
, "5#: 10 .0 in kilogram

"a# (hat is the cross price elasticity of demand'
"&# 1re the goods complementary or su&stitute'

!. ,uring harvest seasons there is a tendency for agricultural prices to fall. 6overnment
often attempts to arrest such price declines &y procuring the product at a price higher
than the market price, and then releasing the product through its fair price shops at a
lower than e%uili&rium price for the &enefit of the poor consumers. ,iscuss its
conse%uences for market im&alance and government finance.
3. ,espite rising demand for electronic goods, their prices are falling over time. /7plain.
+. Consider the world oil market which has two groups of producers. 8ne is the 8P/C
countries who produce a fi7ed amount per year and the other group consists of
competitive producers. $n the short run, &oth the demand and supply curves are very
inelastic. -owever, in the long run the two functions &ecome more elastic. ,iscuss
the conse%uences for the world oil market in the short run and in the long run when
8P/C suddenly cuts &ack on its output.
9. ,iscuss the market conse%uences of :rent control; and :minimum wage laws;.

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