# ECON-301

Question-1: Suppose that you have been hired as an Economic Researcher by OPEC and given the following schedule showing the world demand and supply for oil:

 Price (P) (\$/barrel) Quantity Demanded (Qd) (millions of barrels/day) Quantity Supplied (QS) (millions of barrels/day) 10 60 20 20 50 30 30 40 40 40 30 50 50 20 60

a.           At what price, the oil market will be in equilibrium situation?

b.           If OPEC produces 50 million of barrels/day, calculate its Total Revenue (TR)?

c.            If the price of oil rises from \$40 to \$50 per barrel, what will be the Total Revenue (TR) from oil sales? Also mention either TR will increase or decrease?

d.          When the price changes from \$30/barrel to \$40/barrel, calculate Price Elasticity of Demand (Ed)?

e.            When the price changes from \$30/barrel to \$40/barrel, calculate Price Elasticity of Supply (Es)?

Question 2: Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.

a.     The market for newspapers in your town

Case 1: The salaries of journalists go up.

Case 2: There is a big news event in your town, which is reported in the news paper

b.     The market for St. Louis Rams cotton T-shirts

Case 1: The Rams win the Super Bowl.

Case 2: The price of cotton increases.

c.      The market for bagels

Case 1: People realize how fattening bagels are.

Case 2: People have less time to make themselves a cooked breakfast.

d.     The market for the Krugman and Wells economics textbook

Case 1: Your professor makes it required reading for all of his or her students.

Case 2: Printing costs for textbooks are lowered by the use of synthetic paper

Question-3: Critically explain the concept of perfect competition, monopoly and oligopoly. Why firms do price discrimination?

Question-4: “Price control can be more effective in the short run than the long run”. Explain. How could price controls affect a firm’s incentive to innovate?

Question-5:

a-   Consider the market for new, single-family homes in the Palm Garden. The general demand function for new housing in Palm Garden  is estimated to be

Where Qd is the monthly quantity demanded, P is the price per square foot, M is average monthly income in Palm Garden, and R is the average monthly rent for a three-bedroom apartment in Palm Garden. Qd is measured in units of 1,000 square feet per month.

I.            If average monthly income is \$1,500 and the monthly rental rate for three-bedroom apartments is \$700, then the demand function for new housing in Palm Garden;

Qd = _____________________________________.

II.            Graph the demand curve for new housing in Palm Garden by labeling axes.

b-    The general supply function for new housing in Palm Garden is estimated to be

Where P is the price per square foot of new housing in Palm Garden, PL is the average hourly wage rate for construction workers, and PK is the price of capital (as measured by the average rate of interest paid on loans to home builders). Qs is measured in units of 1,000 square feet per month.

III.            If the average hourly wage rate for construction workers is \$10 per hour and the average rate of interest on loans to builders is 9 percent (i.e., PK = 9), then the supply function for new housing is

Qs = ______________________.

IV.            Solve mathematically for equilibrium price and quantity. Show your work:

PE = \$__________ per square foot.

QE =  _
_________ square feet per month (in 1,000s).

V.            Do your supply and demand curves intersect at PE and QE found in question IV above?  Should they?

Question-6: How competition and monopoly can affect the innovation and fairness?