# Micro and Macro Exercise Essay

Homework Assignments

Chu Nguyen Quynh Huong

Class: M0111

Assignment 1 – Microeconomics

1. The Basics of Supply and Demand (Pindyck – Chapter 2): Excercises 9, 10 (page 63).

Excercises 9:

a) The original demand is

QD =18-3P

And supply is

QS =-6+9P

The 20-percent increase in demand means that the new demand is 120 percent of the original demand, so the new demand is

Q ́D =1.2QD

Q ́D =1.2(18–3P)=21.6–3.6P.

The new equilibrium is where Q ́D equals the original supply: 21.6 – 3.6P = - 6 + 9P

The new equilibrium price is P* = $2.19 per pound. An increase in demand of 20 percent, therefore, increases price by 19 cents per pound, or 9.5 percent.

b) Using the new price of $2.19 in the supply curve,

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b) Do the same calculations as above but now using the long-run elasticities:

ES = 0.4

ED = - 0.4: ES = d(P*/Q*)

ED = - b(P*/Q*) implying 0.4 = d(50/20) ⇨ 0.4 = - b(50/34).

So d = 0.16 and b = 0.27.

Next solve for c and a:

Sc = c + dP and D = a – bP implying 20 = c + 0.16(50) and 34 = a - 0.27(50).

So c = 12 and a = 47.5.

c) OPEC’s supply increases from 14 bb/yr to 16 bb/yr as a result.

Add 16 bb/yr to the short- run and long-run competitive supply equations. The new total supply equations are:

Short-run: S’T=16 + Sc = 16 + 18 + 0.04P = 34 + 0.04P, and

Long-run: S”T= 16 + Sc = 16 + 12 + 0.16P = 28 + 0.16P

These are equated with short-run and long-run demand, so that: 34 + 0.04P = 35.5 - 0.03P implying that P = $21.43 in the short run

28 + 0.16P = 47.5 + 0.27P implying that P = $45.35 in the long run.

2. The Analysis of Competitive Markets (Pindyck – Chapter 9): Exercise 1 (page 343).

a) in free market equilibrium: Ls = LD = 80-10w

If the minimum wage is $5: LD = 30

The number of people be employed is 30 million workers

b) w denote the wage received by the employee

Ls = 10ws

Ws – wd = 1 = s

LD = 80 – 10(ws-1) = 90 – 10ws

Ls = LD ⇨ 10ws = 90 – 10ws ⇨ ws = 4.5

The new equilibrium will be given by intersection of the old supply curve with the new demand curve, ws= $4.5/ hour

L = 10w =