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Problem Set 3 - Solutions

The document discusses the principles of economics, focusing on market equilibrium, shortages, and surpluses in relation to supply and demand. It includes calculations for equilibrium price and quantity, as well as multiple-choice questions regarding price ceilings, elasticity, and market effects. The analysis highlights the impact of price changes on the rental market and other goods, such as cigarettes and tomatoes.

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14 views7 pages

Problem Set 3 - Solutions

The document discusses the principles of economics, focusing on market equilibrium, shortages, and surpluses in relation to supply and demand. It includes calculations for equilibrium price and quantity, as well as multiple-choice questions regarding price ceilings, elasticity, and market effects. The analysis highlights the impact of price changes on the rental market and other goods, such as cigarettes and tomatoes.

Uploaded by

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

Department of Economics

Econ 210: Principles of Economics Section All

Spring 2024-2025
Solution:
a) The market equilibrium price is determined by the relationship quantity
supplied equals quantity demanded. Thus, to find the equilibrium price we
find the price where the quantities are equal, which occurs at the rent
(price) of $2,000. The equilibrium quantity at this price is 12,500
apartments.
b) Since it is lower than equilibrium price, there will be a shortage. 10,000
apartments will be rented. Shortage = *! – *# at + = $1,500 =>Shortage =
15,000 − 10,000 = 5,000
10.000 apartments which is equal to quantity supplied actually be rented.
c) Since it is higher than equilibrium price, there will be a surplus.
10,000apartments will be rented.
Surplus = *# − *!
at + = $2,500 => Surplus = 15,000 − 10,000 = 5,000
10.000 apartments which is equal to quantity demanded actually be rented.
Q2: Consider the following demand and supply curves.

Solution:
i. At a price of $10, there would be a shortage of 600 units.
ii. At a price of $10, 200 units will be sold.
iii. At a price of $25, there would be a surplus of 300 units.
iv. At a price of $25, 500 units will be sold.

Part B: Multiple Choice Questions

Q1: To have an e)ect on a market, a price ceiling must

a) be above equilibrium

b) be equal to equilibrium
c) be below equilibrium

d) none of the above

Q2: A price above equilibrium price will lead to a(n)

a) surplus

b) shortage

c) excess demand

d) price increase

Q3: The U.S. imposes substantial taxes on cigarettes but not on loose

tobacco. When the tax on cigarettes went into e)ect, the demand for home

cigarette rolling machines most likely:

a) decreased, causing the price of cigarette rolling machines to fall and the

quantity of machines purchased to fall.

b) decreased, causing the price of cigarette rolling machines to rise and the

quantity of machines purchased to fall.

c) increased, causing the price of cigarette rolling machines to rise and the

quantity of machines purchased to rise.

d) increased, causing the price of cigarette rolling machines to rise and the

quantity of machines purchased to fall.

Q4: Suppose the price of tomatoes dramatically increases. Which of the

following could cause this change?

a) Hurricanes during the late summer damage the Florida crop, shifting

supply left

b) A reduction in tari)s of tomatoes from Central American, shifting supply right


c) A news report stating that a pesticide used on tomatoes might cause

cancer, shifting the demand to the right

d) Advertising for ketchup increases demand for ketchup, shifting the

demand curve to the left

Q5: The price elasticity of supply is the:

a. change in the quantity supplied divided by the change in price.

b. percentage change in the quantity supplied divided by the percentage

change in price.

c. change in the price divided by the change in the quantity supplied.

d. percentage change in the price divided by the percentage change in the

quantity supplied.

Q6: In general, the greater the elasticity, the:

a. smaller the responsiveness of price to changes in quantity.

b. smaller the responsiveness of quantity to changes in price.

c. larger the responsiveness of price to changes in quantity.

d. larger the responsiveness of quantity to changes in price.

Q7: Demand is said to be elastic when the:

a. percentage change in quantity demanded is less than the percentage

change in price.

b. percentage change in quantity demanded is greater than the percentage

change in price.

c. change in quantity demanded is less than the change in price.

d. change in quantity demanded is greater than the change in price.


Q8: Supply is said to be inelastic when the:

a. percentage change in quantity supplied is less than the percentage

change in price.

b. percentage change in quantity supplied is greater than the percentage

change in price.

c. change in quantity supplied is less than the change in price.

d. change in quantity supplied is greater than the change in price.

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