EC 252 Principles of Microeconomics Spring 2020 Homework 4 Due Date Wednesday April 1 2020 Name Anh Nguyen 1 What happens to equilibrium price and quantity in the following scenarios Circle the correct answer for each scenario below a Supply shifts right b Demand decreases PRICE GOES UP GOES DOWN UNDETERMINED QUANTITY GOES UP GOES DOWN UNDETERMINED PRICE GOES UP GOES DOWN UNDETERMINED QUANTITY GOES UP GOES DOWN UNDETERMINED c Demand and supply both increase PRICE GOES UP GOES DOWN UNDETERMINED QUANTITY GOES UP GOES DOWN UNDETERMINED d Demand shifts left and supply shifts right PRICE GOES UP GOES DOWN UNDETERMINED QUANTITY GOES UP GOES DOWN UNDETERMINED 1 e A very large shift to the right in demand is accompanied by a very small shift to the left in supply assume curves have equal magnitude of slope PRICE GOES UP GOES DOWN UNDETERMINED QUANTITY GOES UP GOES DOWN UNDETERMINED 2 Show the derivation of a supply curve from the underlying fundamentals of producers solving their problem In other words show a societal PPF given price line and amount of good 1 produced Then change the price of good 1 either decrease or increase it and show the new amount of good 1 produced Change the price one more time in the same direction and show the new amount of good 1 produced Plot your three Q P points on a separate graph to reveal your supply curve 2 3 There have been two notions of equilibrium to this point in the course The first involves a societal PPF budget revenue line and societal IC that shows the exact same amount of good 1 being produced as is consumed and the same for good 2 The second involves the intersection of supply and demand curves for a single good Show each of these graphically 3 4 Show the derivation of a demand curve from the underlying fundamentals of consumers solving their problem In other words show a budget constraint and indifference curve that shows a consumer solving his problem Then change the price of good 1 either decrease or increase it and show the new amount of good 1 consumed assume the indifference curves are basically parallel and behave nicely Change the price one more time in the same direction and show the new amount of good 1 consumed Plot your three Q1 P1 points on a separate graph to reveal your demand curve 4 Please circle the correct answer for the multiple choice questions that follow 1 Suppose a consumer has an income of 400 per month and that she spends her entire income each month on beer and bratwurst The price of beer is 5 and the price of a bratwurst is 4 Which of the following combinations of beers and bratwursts is unaffordable a 60 beers and 20 bratwursts b 35 beers and 35 bratwursts c 70 beers and 0 bratwursts d 40 beers and 50 bratwursts e 80 beers and 10 bratwursts 2 A decrease in income will cause a consumer s budget constraint to a Shift outward parallel to its initial position b Shift inward and become more steeply sloped c Shift inward parallel to its initial position d Pivot around the horizontal axis e Pivot around the vertical axis 3 The following diagram shows a budget constraint for a particular consumer If the price of X is 10 what is the price of Y a 5 b 15 c 25 d 35 e 45 f 55 5 4 The following diagram shows two budget constraints BC 1 and BC 2 Which of the following could explain the change in the budget constraint from BC 1 to BC 2 a Simultaneous decrease in both the price of X and the price of Y Increase in income b c Decrease in price of Y d Decrease in income e Doubling of both the price of X and the price of Y f Both a and b are correct g Both a and d are correct h Both d and e are correct 5 When the indifference curve is tangent to the budget constraint a Producers gain increased surplus b A consumer cannot be made better off without increasing his income c The consumer is likely at a suboptimal level of consumption d e f At least two indifference curves must intersect the budget constraint Income is at its optimum for a consumer Indifference curves are likely to intersect 6 Which of the following events would shift the demand curve for gasoline to the left a The income of gasoline buyers rises and gasoline is a normal good b The income of gasoline buyers falls and gasoline is an inferior good c Public service announcements run on television encouraging people to walk or ride bicycles instead of driving cars d The price of gasoline rises e The price of gasoline falls 6 7 Which of the following would cause the demand curve for an inferior good to shift to 8 Suppose that a decrease in the price of good X results in fewer units of good Y being the right a b c d Decrease in price of a substitute good Increase in income Increase in price of a substitute good Increase in price of a complement good sold This implies that X and Y are a Complementary goods b Normal goods c Inferior goods d Substitute goods e Giffen goods 9 When supply and demand both increase equilibrium a Price will increase b Price will decrease c Quantity may increase decrease or stay the same d Price may increase decrease or stay the same e Price and quantity will increase 7