Intermediate Microeconomics ECON 302 Homework #1

Homework #1
Intermediate Microeconomics ECON 302, Section 001

1. (3 Points) Circle
the letter next to the statements that represent positive economic statements.
A. People buy more of
a good or service when the price is lower.
B. The distribution
of income is skewed.
C. The distribution
of income is unfair.
D. The government
should lower taxes on working-class Americans.
E. Raising the
threshold of the Earned Income Tax Credit will make more working-class
Americans
eligible for the credit.
2. Suppose Canon has decided to invest a total of $45
million to develop a new camera that they expect
to increase sales by $60 million. After spending $38
million, the company learns that Sony is also
developing a new camera. This change will cut into the sales
of Canon’s camera when it is released.
Now, Canon forecasts sales of their new product of only $30
million. Should Canon continue to develop
and eventually sell their camera?
A. (1 Point) CIRCLE ONE OF THE FOLLOWING: YES
NO
B. (2 Points) Concisely explain your choice in Part A.
3. (2 Points) Graph the following functions in the space
provided. The axes on the graph have been
labeled for you. Treat each block in the grid as 10 units.
Be sure to label each function’s y-intercept.
Clearly label each function as F1 or F2.
Function 1: 100 = X + 2Y
Function 2: 140 = 2X+2Y
4. (2 Points) Graph the following functions in the space
provided. The axes on the graph have been
labeled for you. Treat each block in the grid as two units.
Be sure to label the coordinates of three
specific points on each function. Clearly label each
function as F1 or F2.
Function 1: 20 = XY
Function 2:
2
1
2
1
30 Y X =
5. Suppose you have the following supply and demand
functions:
P Q
P Q
D
S
2 220
3 30
? =
+ =
A. (2 Points) Derive the inverse-demand and inverse-supply
equations.
B. (2 Points) Solve for the equilibrium price and quantity.
C. (2 Points) At what price does a shortage of 20 units
occur?
6. Assume that the market for apartments is represented by
the following supply and demand
functions:
Income P P Q
P Q
House D
S
1 . 0 25 . 0 2 000 , 20
000 , 3 3
? + ? =
? =
A. (2 Points) Are apartments and houses complements or
substitutes? Explain your reasoning.
CIRCLE ONE:
COMPLEMENTS SUBSTITITUTES
B. (2 Points) Are apartments a normal or inferior good?
Explain your reasoning.
CIRCLE ONE:
NORMAL INFERIOR
C. (2 Points) Imagine that you are studying the supply of
apartments for a developer. After some
extended research, you decide that the interest rate at
which the developer can obtain construction
loans should appear in your supply function as an additional
variable. Prior to running any analysis
with
actual data, would you expect the coefficient on the
interest rate variable to be positive or negative?
Explain your reasoning.