ECONOMICS 110A/111 Assignment #1

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ECONOMICS 110A/111

Assignment #1

Due Dates and Notes:

● DUE: By Friday October 8, 2:00 PM. We are still working on the logistics of setting up the assignment submission boxes on onQ and will send details next week.

● There is a built-in 72hr grace period for submissions for those who would otherwise request short term Academic Consideration or Accommodation related to the deadline above, so there is no need to make them. We will not accept those requests related to the grace period. Do not use the grace period unless you must. No exceptions will be made beyond the grace period unless accompanied by a long-term Request for Academic Consideration or Accommodation (both require documentation).

● Upload a single machine-readable file (Word or PDF) to the Assignment Dropbox (Assessments → Assignments). Written parts of your answers must be machine-readable (diagrams and algebra can be scanned and embedded within your document with the relevant question – not all at the end). Use the Cover Page when submitting assignments (download from the Assignments page on onQ) – attach it to the front of your assignment submission.

● This assignment covers material from Chapters 3-5 of the text.

True, False, or Uncertain    [20 marks - 5 marks each]

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important.

A1-1. Due to several supply-chain issues the price of computer chips has risen in recent months (this part is true and there is no need to prove it to be so). The result of this change would be to increase the price of automobiles that require many computer chips in their manufacture.

A1-2. If you had been hired to advise your local public transit authority on how they could raise transit revenues and you knew the elasticity of demand for transit rides, you would be able to give a good answer.

A1-3. Assuming that supply is somewhat elastic, the burden of a per unit tax is borne more by consumers the more elastic is the demand curve.

A1-4. The imposition of a binding minimum wage makes all workers affected by it better off.

Problems    [20 marks - marks for each part as shown]

A1-5. Suppose the supply and demand curves for a particular product are given by:

where and are quantities in units and P is the price per unit.

(a) Graph the supply and demand curves. Be sure to calculate the P and Q intercepts for demand and the P intercept for supply. Calculate and illustrate the equilibrium price and quantity. [Hint: Show your work. [5]

(b) Calculate both the demand and supply elasticity around the equilibrium point. [Hint: you can use either the point method or the average arc (midpoint) method.] [5]

(c) Suppose the government implements a price ceiling of $20/unit in this market. Is this price ceiling binding on the market? What are the quantities demanded and supplied at the price ceiling? How many units are exchanged at this price? Given the effects of the policy, is there a potential for illegal trade? Briefly explain your answers where necessary. [5]

(d) What is value of the economic surplus that would be generated in the original equilibrium? Is there a deadweight loss due to the price ceiling policy, and if so, what is its value? Briefly explain. [5]

The material in this assignment is copyrighted and is for the sole use of students registered in Economics 110, 111 and 112. The material in this assignment may be downloaded for a registered student's personal use, but shall not be distributed or disseminated to anyone other than students registered in Economics 110, 111 and 112. Failure to abide by these conditions is a breach of copyright, and may also constitute a breach of academic integrity under the University Senate's Academic Integrity Policy Statement.