ECON545 Week 1 Suggested Answers to Questions and Problems
NOTE: Please pay particular attention to the way that answers are stated, because these are the kinds of statements that will be looked for in the quizzes and final exam. In general, all answers need to be supported with appropriate reasoning.
Chapter 3 Question 8
8. See the figure above. A change in demand is a shift in the entire demand curve and is caused by a change in one or more of the determinants. In contrast, a change in quantity demanded is a movement along an existing demand curve caused by a change in price. This distinction is important. Say, for example, you want to distinguish between rising sales at ...view middle of the document...
Market uncertainty is always a factor on the supply side of any market. The nuclear power industry was heavily encouraged by the U.S. government and initially subsidized, but when this encouragement and subsidy were subsequently withdrawn, the industry suffered considerable losses. Some polysilicon manufacturers suffered losses in the late 1990s when they invested in capacity only to see Asia and especially Japan suffer a slow-down in business.
12b. They can wait and make sure that the solar industry is for real, but waiting can cause them to lose market share in the future. They can reach agreements with solar manufacturers to guarantee a certain level of purchases from any expanded capacity. They might work with the Chicago Commodities Exchange to develop a futures market in polysilicon so that they can hedge their capacity.
Chapter 3 Question 13
13a. $20 a pound. See graph.
13b. Supply has been cut by 5/6, so equilibrium price will rise to $40 a pound. See table and graph.
13c. Coke’s impact on the demand curve is shown in the table and graph; equilibrium price will be somewhat above $40 a pound.
13d. Demand falls to D2, while supply returns to S0; equilibrium price will...