MBAA
\n523
\nProblem Set 2<\/p>\n
The popular and
\nfinancial press regularly report on economic events, but the description is
\nusually quite different from the theoretical model provided in a microeconomics
\ntextbook. This problem set provides an
\nopportunity to practice supply and demand analysis using excerpts from articles
\npublished in the Wall Street Journal.<\/p>\n
For each of the
\nfollowing 12 economic circumstances, show the shift of supply and\/or demand
\ncurves; use an arrow to show the shift in the curves, the change in price and the
\nquantity demanded. To insert lines and
\narrows in MS Word, click on \u00e2\u0080\u009cInsert\u00e2\u0080\u009d on the upper menu bar. Next, click the drop down menu under
\n\u00e2\u0080\u009cShapes.\u00e2\u0080\u009d Select the shape you\u00e2\u0080\u0099d wish to
\ninsert, then use the mouse to insert the line or arrow into the graph. <\/p>\n
Below the graphical
\nanalysis, write a short explanation explaining your analysis. Here\u00e2\u0080\u0099s an example of the graphical analysis:<\/p>\n
This example shows an
\nincrease in the demand curve, perhaps as a result of an increase in
\nincome. The shift in the demand curve
\nleads to a higher price and quantity demanded.
\nFor each problem, explain why the curve(s) shifted. <\/p>\n
Problem 1 – Conflict
\nfears drive up crude prices.
\nA military conflict
\nforces the shut-down of major crude oil pipeline. World oil prices soared to an 18 month high. Show the effects in the crude oil market.<\/p>\n
Explanation:<\/p>\n
Problem 2 \u00e2\u0080\u0093 Egypt’s Gaza
\nCrackdown Hammers Economy
\nAn aggressive crackdown
\nby Egypt’s interim government on smuggling tunnels between Egypt and the Gaza
\nStrip is crushing the Palestinian enclave’s economy, sparking concerns it could
\nfuel a militant backlash. To get around the blockade, Gazans smuggle goods, and
\nthe tunnels’ closure has sent prices soaring in the past three weeks. Many
\nGazans now buy the Israel-shipped fuel for seven shekels ($2) a liter — more
\nthan twice as much as that smuggled from Egypt.
\nThe cost of cement, another major smuggled item, has reached $1,500 a
\nton from $1,000, said Ahmad Abdul-Rahman, a merchant. Show the effects in the Gaza market for goods
\nand services.<\/p>\n
Explanation: <\/p>\n
Problem 3 \u00e2\u0080\u0093 Dutch
\nEconomy Faces Stagnation
\nThe Albert Cuyp market
\nhere, famous for its offerings of cheap clothing and exotic foods, is one of
\nthe busiest in the Netherlands. But
\nwhile it still attracts plenty of shoppers, customers are increasingly wary of
\nspending their money there, said Nicolas Steur, a 50-year-old fishmonger.
\nRevenue at his stall, where he sells fresh haddock, raw herring and other
\nseafood, has fallen by 20% compared with four years ago. “We still have about the same amount of
\ncustomers,” Mr. Steur said. “But they spend less money. People are
\ncutting down on their expenses.” Show the effects in the Albert Cuyp
\nmarket. <\/p>\n
Explanation:<\/p>\n
Problem 4 – Farmers Opt
\nto Dump Supplies as Weather Forecast Dashes Hopes for Price Jump.
\nU.S. soybean supplies
\nhave been tight since last year’s severe drought cut production. Many farmers
\nheld some of last year’s soybeans in storage, waiting to see if they could sell
\nthem at a higher price this summer, when supplies are tightest before the next
\nharvest. This week, many of those
\nfarmers decided it was time to sell. Weather conditions for this year’s U.S.
\ncrop are mostly favorable, which means a large harvest this fall could push
\nprices lower. Historically high cash prices for soybeans early this week also
\nlured farmers to start selling. The
\nresult has been a collapse in cash markets over the past two days. Show the effects of the changes in the last
\ntwo days. <\/p>\n
Explanation: <\/p>\n
Problem 5 – China lures
\nthe world\u00e2\u0080\u0099s pilots.
\nThe rising middle class
\nin China means millions more people are taking to the skies. There\u00e2\u0080\u0099s a tsunami of retirement which is now
\nunder way in the airline industry.
\nChinese airlines have raised their pay offers to foreign pilots by up to
\n30% in the past 18 months. Show the
\neffects in the global pilot labor market.<\/p>\n
Explanation:<\/p>\n
Problem 6 – Companies
\nunplug from grid, delivering a jolt to utilities.
\nOn a hill overlooking
\nthe Susquehanna River, two big wind turbines crank out electricity for Kroger
\nCo.\u00e2\u0080\u0099s Turkey Hill Dairy in rural Lancaster County, Pa., allowing it to save 25%
\non its power bill for the past two years.
\nShow the effect on the public electric utility company. <\/p>\n
Explanation:<\/p>\n
Problem 7 \u00e2\u0080\u0093 Rising oil
\nprices.
\nRising oil prices cause
\nairlines to adjust flight schedules.
\nShow the effect on airline prices and quantity demanded. <\/p>\n
Explanation:<\/p>\n
Problem 8 \u00e2\u0080\u0093 Federal
\nAviation Administration increases minimum pilot qualifications.
\nRegional airlines are
\nconcerned that higher flight hour requirements for new pilots will increase
\ncosts. Show the effect on passenger
\nticket prices and quantity demanded. <\/p>\n
Explanation: <\/p>\n
Problem 9: Europe levies new tax on airline tickets.
\nA new tax on airline
\ntickets has raised concerns the European airline traffic will fall. Show the effect on airline ticket prices and
\nquantity demanded. <\/p>\n
Explanation: <\/p>\n
Problem 10 – More
\nDoctors Steer Clear of Medicare
\nFewer American doctors
\nare treating patients enrolled in the Medicare health program for seniors,
\nreflecting frustration with its payment rates and pushback against mounting
\nrules, according to health experts — just as millions of Americans are poised
\nto gain access to such coverage under the new health law next year. Some Americans may have difficulty finding
\ndoctors who will take their new benefits or face long waits for appointments
\nwith those who do. Some experts
\nattribute the rise in defections to Medicare payment rates that haven’t kept
\npace with inflation and the threat of more cuts to come. Under a budgetary
\nformula enacted by Congress in 1997, physicians could see Medicare reimbursements
\nslashed by 25% in 2014 unless Congress intervenes to delay the cuts, which it
\nhas done several times. Show the effects
\non Medicare patients. Hint: Note that some patients may have trouble
\nfinding doctors. <\/p>\n
Explanation:<\/p>\n
Problem 11 \u00e2\u0080\u0093 Wage-Rise
\nReport Sees Fewer Jobs, Less Poverty
\nPresident
\nBarack Obama’s quest to raise the federal minimum wage to $10.10 an hour would
\neliminate about 500,000 jobs by 2016 but increase pay for millions of Americans
\nand lift nearly a million out of poverty, a Congressional Budget Office report
\nfound. Analyze the labor market with a
\nminimum wage of $10.10 per hour.<\/p>\n
Explanation: <\/p>\n
Problem 12 \u00e2\u0080\u0093 Rent Control
\nMany of the proponents
\nof price ceilings argue that government-mandated maximum prices, such as rent
\ncontrols in New York City, simply reduce producers\u00e2\u0080\u0099 profits and do not affect
\nthe quantity supplied of a good on the market.
\nIf the relevant supply and demand curves are as pictured below, show
\nwhether this belief is correct. <\/p>\n
Explanation:<\/p>\n
Problem 13 – Price
\nControls
\nRent controls limit the
\nrent to Pc. Show the Lost Social Welfare
\n(known as Deadweight loss). You can do
\nso by inserting the curve shape which can be drawn around the deadweight
\nloss. <\/p>\n
S<\/p>\n
D<\/p>\n
Q<\/p>\n
P<\/p>\n
Pc<\/p>\n
Explanation:<\/p>\n
Problem 14 \u00e2\u0080\u0093 Supply and
\ndemand
\nSuppose demand and
\nsupply are given by Qd = 50 \u00e2\u0080\u0093 P and Qs = 1\/2P \u00e2\u0080\u0093 10.
\nA.
\nWhat
\nthe equilibrium quantity and price in this market?
\nB.
\nDetermine
\nthe quantity demanded, the quantity supplied, and the magnitude of the surplus
\nif the price floor is $42 is imposed on this market.
\nC.
\nDetermine
\nthe quantity demanded, the quantity supplied, and the magnitude of the shortage
\nif a price ceiling of $30 is imposed on this market. <\/p>\n
Problem 15 \u00e2\u0080\u0093 Supply
\nSuppose the supply
\nfunction for product X is given by Qsx = -50 + 0.5Px
\n\u00e2\u0080\u0093 5Pz.
\nA.
\nHow
\nmuch of product X is supplied when Px = $500 and Pz =
\n$30?
\nB.
\nHow
\nmuch of product X is supplied when Px = $250 and Pz = $10?<\/p>\n","protected":false},"excerpt":{"rendered":"
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