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Econ 247 Assignment 1 with all the answers!
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Question 1A- A new car will be more fuel efficient and hold better safety standards, but it will depreciate quickly
and have a higher insurance cost compared to a used car. A new car will also cost more then an old one
upfront while it will be more dependable and have less issues.
B- While the cost savings of being in your own basement are quite substantial, the distractions of being
at home and the unprofessional appeal to customers is a big trade off.
C- the new construction jobs and other long term jobs a new high rise building would bring vs the
increase of greenhouse gasses and congestion into the already crowded downtown area with minimal
parking
Question 2
i- Microeconomics.
ii- Macroeconomics
iii- Macroeconomics
iv- Microeconomics
Question 2B
i- Normative
ii- Positive
iii- Normative
iv- Positive
Question 3
A- the most efficient combos are 28 XBOXs and 35 TVs
B- moving from point c to point d sacrifices 20 XBOXs to produce 20 more TVs, also known as a constant
opportunity cost.
C- The economy will produce 60 TVs if it produces 0 XBOXs
D- Point F is not efficient, because it does not use all the available resources.
Question 4
A- the equilibrium price is $8 and quantity is 12
, B- at the price of $4 there is a shortage in the economy. There is more demand for the good then
producers are willing to supply for the given price, therefore we would expect the price to rise as there
are too many buyers chasing too few goods, this would lead the price to reach equilibrium.
C- At the price of $12 there is a surplus in the market, the sellers will find they’re producing too much
and not being able to sell it. We would then expect the supply to reduce and the demand to rise as the
good becomes cheaper until we reach equilibrium.
D- the slope of the demand curve from point E to point C is -½. Calculated as: change in price $8-$4
=4 divided by change in quantity demanded 12-20= -8.
E- The Elasticity of demand as the price changes from $12 to $8 is 2 and is considered relatively elastic.
Calculated as: {(4-12) / [(4+12/2)]} / {(12-8) / [(12+8)/2)]}
F- The elasticity of supply as the price changes from $8 to $12 is 1.25 and is considered relatively elastic.
Calculated as: {(12-20) / [(12+20/2)]} / {(8-12) / [(8+12/2)]}
G- a $12 price floor would make the quantity demanded 4 and the quantity supplied at 20. Therefore
there would be a surplus of 16 in the market. Some producers who would like to sell the good at market
price would not be able to, so it would be a binding price floor.
H- price ceilings are used to protect consumers from conditions that could make commodities
prohibitively expensive, for example rent control. Price floors are used by the government to prevent
prices from being too low, examples would be minimum wage and agriculture. Policy makers use price
ceilings and price floors to help the poor and middle class, also if they view the market outcome as
unfair.
Question 5
A- The couples’ income elasticity of demand is 4, which means that for every % change in income, there
is a 4% increase in the demand for eating out. This also means that a restaurant meal is a normal good
to the Shaffers.
B-The determinants of price elasticity of demand are:
1- Income level, the income of a household determines their demand of a certain product as the prices
change. For example, a wealthy family will not cut down on fruits and vegetables as prices increase but a
middle income or poor family might.
2- Nature of good, a luxurious good will react more to a price increase then a necessity because its use
can be postponed or stopped. An inferior good is expected to drop in demand if income increases.
3- Availability of substitutes for the product, the closer the substitutes that are available the more elastic
the demand will be to price. For instance butter and margarine.
4- Price elasticity of markets also depends on how the market is defined, the narrow markets tend to be
more elastic then broadly defined markets. For example “food” is a very broad market vs “vanilla ice
cream”.
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