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MBAA 523 Problem Set 2 (graphs in the attachment)




Question;MBAA;523;Problem Set 2;The popular and;financial press regularly report on economic events, but the description is;usually quite different from the theoretical model provided in a microeconomics;textbook. This problem set provides an;opportunity to practice supply and demand analysis using excerpts from articles;published in the Wall Street Journal.;For each of the;following 12 economic circumstances, show the shift of supply and/or demand;curves, use an arrow to show the shift in the curves, the change in price and the;quantity demanded. To insert lines and;arrows in MS Word, click on ?Insert? on the upper menu bar. Next, click the drop down menu under;?Shapes.? Select the shape you?d wish to;insert, then use the mouse to insert the line or arrow into the graph.;Below the graphical;analysis, write a short explanation explaining your analysis. Here?s an example of the graphical analysis;This example shows an;increase in the demand curve, perhaps as a result of an increase in;income. The shift in the demand curve;leads to a higher price and quantity demanded.;For each problem, explain why the curve(s) shifted.;Problem 1 - Conflict;fears drive up crude prices.;A military conflict;forces 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.;Explanation;Problem 2 ? Egypt's Gaza;Crackdown Hammers Economy;An aggressive crackdown;by Egypt's interim government on smuggling tunnels between Egypt and the Gaza;Strip is crushing the Palestinian enclave's economy, sparking concerns it could;fuel a militant backlash. To get around the blockade, Gazans smuggle goods, and;the tunnels' closure has sent prices soaring in the past three weeks. Many;Gazans now buy the Israel-shipped fuel for seven shekels ($2) a liter -- more;than twice as much as that smuggled from Egypt.;The cost of cement, another major smuggled item, has reached $1,500 a;ton from $1,000, said Ahmad Abdul-Rahman, a merchant. Show the effects in the Gaza market for goods;and services.;Explanation;Problem 3 ? Dutch;Economy Faces Stagnation;The Albert Cuyp market;here, famous for its offerings of cheap clothing and exotic foods, is one of;the busiest in the Netherlands. But;while it still attracts plenty of shoppers, customers are increasingly wary of;spending their money there, said Nicolas Steur, a 50-year-old fishmonger.;Revenue at his stall, where he sells fresh haddock, raw herring and other;seafood, has fallen by 20% compared with four years ago. "We still have about the same amount of;customers," Mr. Steur said. "But they spend less money. People are;cutting down on their expenses." Show the effects in the Albert Cuyp;market.;Explanation;Problem 4 - Farmers Opt;to Dump Supplies as Weather Forecast Dashes Hopes for Price Jump.;U.S. soybean supplies;have been tight since last year's severe drought cut production. Many farmers;held some of last year's soybeans in storage, waiting to see if they could sell;them at a higher price this summer, when supplies are tightest before the next;harvest. This week, many of those;farmers decided it was time to sell. Weather conditions for this year's U.S.;crop are mostly favorable, which means a large harvest this fall could push;prices lower. Historically high cash prices for soybeans early this week also;lured farmers to start selling. The;result has been a collapse in cash markets over the past two days. Show the effects of the changes in the last;two days.;Explanation;Problem 5 - China lures;the world?s pilots.;The rising middle class;in China means millions more people are taking to the skies. There?s a tsunami of retirement which is now;under way in the airline industry.;Chinese airlines have raised their pay offers to foreign pilots by up to;30% in the past 18 months. Show the;effects in the global pilot labor market.;Explanation;Problem 6 - Companies;unplug from grid, delivering a jolt to utilities.;On a hill overlooking;the Susquehanna River, two big wind turbines crank out electricity for Kroger;Co.?s Turkey Hill Dairy in rural Lancaster County, Pa., allowing it to save 25%;on its power bill for the past two years.;Show the effect on the public electric utility company.;Explanation;Problem 7 ? Rising oil;prices.;Rising oil prices cause;airlines to adjust flight schedules.;Show the effect on airline prices and quantity demanded.;Explanation;Problem 8 ? Federal;Aviation Administration increases minimum pilot qualifications.;Regional airlines are;concerned that higher flight hour requirements for new pilots will increase;costs. Show the effect on passenger;ticket prices and quantity demanded.;Explanation;Problem 9: Europe levies new tax on airline tickets.;A new tax on airline;tickets has raised concerns the European airline traffic will fall. Show the effect on airline ticket prices and;quantity demanded.;Explanation;Problem 10 - More;Doctors Steer Clear of Medicare;Fewer American doctors;are treating patients enrolled in the Medicare health program for seniors;reflecting frustration with its payment rates and pushback against mounting;rules, according to health experts -- just as millions of Americans are poised;to gain access to such coverage under the new health law next year. Some Americans may have difficulty finding;doctors who will take their new benefits or face long waits for appointments;with those who do. Some experts;attribute the rise in defections to Medicare payment rates that haven't kept;pace with inflation and the threat of more cuts to come. Under a budgetary;formula enacted by Congress in 1997, physicians could see Medicare reimbursements;slashed by 25% in 2014 unless Congress intervenes to delay the cuts, which it;has done several times. Show the effects;on Medicare patients. Hint: Note that some patients may have trouble;finding doctors.;Explanation;Problem 11 ? Wage-Rise;Report Sees Fewer Jobs, Less Poverty;President;Barack Obama's quest to raise the federal minimum wage to $10.10 an hour would;eliminate about 500,000 jobs by 2016 but increase pay for millions of Americans;and lift nearly a million out of poverty, a Congressional Budget Office report;found. Analyze the labor market with a;minimum wage of $10.10 per hour.;Explanation;Problem 12 ? Rent Control;Many of the proponents;of price ceilings argue that government-mandated maximum prices, such as rent;controls in New York City, simply reduce producers? profits and do not affect;the quantity supplied of a good on the market.;If the relevant supply and demand curves are as pictured below, show;whether this belief is correct.;Explanation;Problem 13 - Price;Controls;Rent controls limit the;rent to Pc. Show the Lost Social Welfare;(known as Deadweight loss). You can do;so by inserting the curve shape which can be drawn around the deadweight;loss.;S;D;Q;P;Pc;Explanation;Problem 14 ? Supply and;demand;Suppose demand and;supply are given by Qd = 50 ? P and Qs = 1/2P ? 10.;A.;What;the equilibrium quantity and price in this market?;B.;Determine;the quantity demanded, the quantity supplied, and the magnitude of the surplus;if the price floor is $42 is imposed on this market.;C.;Determine;the quantity demanded, the quantity supplied, and the magnitude of the shortage;if a price ceiling of $30 is imposed on this market.;Problem 15 ? Supply;Suppose the supply;function for product X is given by Qsx = -50 + 0.5Px;? 5Pz.;A.;How;much of product X is supplied when Px = $500 and Pz =;$30?;B.;How;much of product X is supplied when Px = $250 and Pz = $10?


Paper#56505 | Written in 18-Jul-2015

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