Dr. Barry Haworth
University of Louisville
Department of Economics
Economics 202-01
M/W 9:30-10:45am
Please submit your answers to this homework through the assignment link on Blackboard. No
credit will be given for answers submitted in class or emailed to me.
To access
this homework on Blackboard, do the following. After logging into Blackboard, check
“Assignments” for this class. You should
see a link that says “Homework #2”. By clicking on this link, you should be able
to start answering the homework questions.
Please answer each question and when you are finished submit your
answers for grading. You will not receive credit for homework
that is returned in class. Credit is only given to students who
submit their answers through Blackboard. In addition, please note that
while you can save this homework at Blackboard before submitting it for grading
- once you submit the homework, it is done and you cannot take it back, revise
and resubmit. Remember though, if you do not submit the homework by the
deadline, then it is considered late. You will not be able to submit
homework through this link once that deadline passes.
Note
that on Question #1 and Questions #4-7, you'll be referred to an online file
that has data or information which you will use to answer those
questions. Each of these files can be found within the Homework #2
material folder in "Course Documents" at Blackboard. In Question #6, you’re asked to calculate a
value for real income. Your answer
should be expressed in terms of dollars and cents. E.g., twenty dollars would be written as
$20.00 rather than 20 or $20. If you
have any questions on how to express an answer, then be sure to ask before you
submit the homework for grading.
1.
We’ll be using data from the Energy Information Administration website (http://www.eia.doe.gov) on the monthly price and quantity
of natural gas sold to residential consumers in Kentucky. Assume that the prices and quantities you
observe in the tables represent the equilibrium price (P*) and equilibrium
quantity (Q*) in this market. Implicit
within this analysis is the assumption that the demand and supply curves in
this market are not horizontal or vertical (i.e. that these curves have their
“typical slope”).
Two
sets of data are provided below, and from that data you must determine how the
equilibrium price and quantity changed between a given pair of months.
Natural
Gas residential prices in Kentucky: http://www.eia.gov/dnav/ng/hist/n3010ky3m.htm
(or go to Homework #2 material in “Course Documents” at
Blackboard and find the file HW2-question1-pricedata.xls)
Natural Gas residential consumption in
Kentucky: http://www.eia.gov/dnav/ng/hist/n3010ky2m.htm
(or go to Homework #2 material in “Course Documents” at
Blackboard and find the file HW2-question1-consumptiondata.xls)
Given these observed changes in P*
and Q*, your job is to explain how the demand and/or supply curve for natural
gas in Kentucky must have shifted by matching each item in the “Change in P*
and Q*” column on the left to the appropriate response(s) in the “Shift in
curve(s)” column on the right. Your
choice for each shift should be that which best explains the observed change in
P* and Q*.
|
Change in P* and Q*: |
|
Shift in curve(s): |
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a. February 2009 to March 2009 |
|
A. Increase in
demand |
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b. January 2010 to February 2010 |
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B. Decrease
in demand |
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c. October 2010 to November 2010 |
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C. Increase
in supply |
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d. July 2011 to August 2011 |
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D. Decrease
in supply |
|
|
|
E. Increase
in demand and increase in supply |
|
|
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F. Decrease
in demand and decrease in supply |
|
|
|
G. Increase
in demand and decrease in supply |
|
|
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H. Decrease
in demand and increase in supply |
2. Consider the market for Retail Gasoline in central Louisville (e.g. downtown). Assume there are other markets in the greater Louisville area that are based on geography as well (e.g. the western Louisville market, eastern Louisville market, and southern Louisville market. As you may know, it is very easy to travel between these areas and with web sites like Louisvillegasprices.com, it’s also possible to know where to find cheap gas (if there’s a difference in price between these areas).
Below,
you have 5 different events which we can assume will affect the central
Louisville market for retail gasoline, and your “job”
is to predict each effect using the demand and supply model for this
market. Match each event (listed under
“Events” below) on the left to the appropriate effect (“Effect: Shift in
Curve(s)”) on the right. E.g., if an
increase in consumer income causes a decrease in Supply, then you’d match this
event with “D” from the “Effect: Shift in Curve(s)” list below.
|
Events: |
|
Effect: Shift in Curve(s) for central
Louisville gasoline market |
|
a. Increase in consumer income |
|
A.
Increase (shift right) in Demand for central Louisville gasoline |
|
b. Increase in gasoline taxes (on suppliers) |
|
B. Decrease
(shift left) in Demand for central Louisville gasoline |
|
c. Increased productivity at Louisville gas stations |
|
C.
Increase (shift right) in Supply of central Louisville gasoline |
|
d. Government raises the legal driving age to 18 |
|
D. Decrease
(shift left) in Supply of central Louisville gasoline |
|
e. Significant decrease in the price of retail gasoline in the southern Louisville area |
|
E.
Increase (shift right) in Demand for central Louisville gas and
Increase (shift right) in Supply of central Louisville gas |
|
|
|
F.
Decrease (shift left) in Demand for central Louisville gas and
Decrease (shift left) in Supply of central Louisville gas |
|
|
|
G.
Increase (shift right) in Demand for central Louisville gas and Decrease
(shift left) in Supply of central Louisville gas |
|
|
|
H.
Decrease (shift left) in Demand for central Louisville gas and
Increase (shift right) in Supply of central Louisville gas |
3. Similar to what we did in question #2, it is also possible to predict how an event will most likely affect the equilibrium price and quantity within a market. Consider the market used in question #2, the central Louisville market for retail gasoline. For each of the 5 events on the left below, match the event to the change in equilibrium price and quantity that would be predicted by the demand and supply model for the central Louisville gasoline market.
|
Events: |
|
Effect: DP* and DQ* in the central Louisville
gas market |
|
a. There is an approaching holiday weekend |
|
A.
Increase in equilibrium price and increase in equilibrium quantity |
|
b. Significant increase in the cost of crude oil |
|
B.
Decrease in equilibrium price and decrease in equilibrium quantity |
|
c. Improved technology with gas pumps |
|
C.
Increase in equilibrium price and decrease in equilibrium quantity |
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d. Local government regulations raise the cost of operating at all gas stations in Louisville |
|
D. Decrease
in equilibrium price and increase in equilibrium quantity |
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e. Kroger joins with all gas stations in eastern Louisville to provide cheaper gasoline at those stations for all Kroger card holders |
|
|
4. To answer this question, you must go to the website of the Bureau of Labor Statistics (BLS) and access a file that talks about the CPI from November, 2011. The file is located at http://www.bls.gov/cpi/cpid1111.pdf and when you access the file, find “Table 1. Consumer Price Index for All Urban Consumers (CPI-U)” on pages 4 and 5 (note: a link to this table is also located in the Homework #2 material folder in Course Documents at Blackboard).
According to Table 1, what is the (unadjusted) CPI for All Items in November, 2011?
(note: do not report the CPI value that says “1967=100”)
5. To answer this question, you’ll be using the same BLS table from Question #4 above (Table 1. Consumer Price Index for All Urban Consumers) which is located at http://www.bls.gov/cpi/cpid1111.pdf (and again, within Course Documents at Blackboard).
Using Table 1 in this Report, the second column gives you the “Relative Importance, December 2010” – i.e., the “weights” for each expenditure category in the CPI. Use this column to rank the following seven expenditure categories below, where each category is given as a specific row. The top ranked category (largest weight) should be ranked “1”, second largest ranked “2”, and so forth – all the way to the seventh largest (i.e. smallest) category being ranked as “7”. Note that there is no partial credit on this question, it’s either completely correct or incorrect.
____ Food & Beverages
____ Housing
____ Apparel
____ Transportation
____ Medical Care
____ Recreation
____ Education & Communication
6. Go to http://www.bls.gov/cpi/cpid1111.pdf and locate the BLS table called “Table 10. Consumer Price Index for All Urban Consumers (CPI-U): Selected areas, all items index”. This file is also located within Course Documents at Blackboard).
In the CPI Report for November 2011, go to the lower half of the table – just below where it says “selected local areas”) – and answer the question below.
Use the November 2011 CPI (All Items) from the Chicago area and calculate the real (annual) income for someone from Chicago who has a nominal income of $50,000 per year.
(note: round your answer to the nearest whole cent and express your answer in terms of dollars).
7. Go to http://www.bls.gov/cpi/cpid1111.pdf and locate the BLS table called “Table 10. Consumer Price Index for All Urban Consumers (CPI-U): Selected areas, all items index”. This file is also located within Course Documents at Blackboard).
In the CPI Report for November 2011, go to the lower half of the table – just below where it says “selected local areas”) – and answer the question below.
Consider an individual with nominal income of $100,000. Based upon the November 2011 CPI (All Items) reported in the table, in which city would the real income of this individual be highest?
a. Chicago-Gary-Kenosha, IL-IN-WI
b. Los Angeles-Riverside-Orange County, CA
c. New
York-Northern N.J.-Long Island, NY-NJ-CT-PA
d.
Boston-Brockton-Nashua, MA-NH-ME-CT
e. Cleveland-Akron, OH
f. Dallas-Fort Worth, TX